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Obama plans tax on US firms overseas to fix roads at home

US President Barack Obama Image copyright AP
Image caption President Barack Obama will present his latest budget on Monday

US President Barack Obama plans to close a tax loophole that allows US firms to avoid paying taxes on overseas profits, the White House says.

His 2016 budget would impose a one-off 14% tax on US profits stashed overseas, as well as a 19% tax on any future profits as they are earned.

The $238bn (£158bn) raised would be used to fund road projects in the US.

But analysts say it is unlikely the Republican-controlled Congress will approve the proposals.

Mr Obama told broadcaster NBC that despite several years of economic improvement, wages and incomes for middle class families were "just now ticking up".

"They haven't been keeping pace over the last 30 years compared to, you know, corporate profits and what's happening to folks in the very top," he said.

Image copyright Reuters

Research firm Audit Analytics calculated last April that US firms in total had $2.1tn-worth of profits stashed abroad.

It found US conglomerate General Electric had the most profit stored overseas at $110bn. Tech giants Microsoft and Apple and drugs companies Pfizer and Merck all featured in the top five.

No tax is currently due on foreign profits as long as they are not brought into the US.

As a result some companies put their earnings in low tax jurisdictions and simply leave them there.

The White House said its plans for an immediate 14% tax would raise $238bn, which would be used to fund a wider $478bn public works programme of road, bridge and public transport upgrades.

"This transition tax would mean that companies have to pay US tax right now on the $2tn they already have overseas, rather than being able to delay paying any US tax indefinitely," a White House official said.

The official said that after this one-off tax, the 19% permanent tax firms would have to pay on overseas profits "would level the playing field, and encourage firms to create jobs here at home."

Image copyright Reuters
Image caption Apple would be among the American firms most affected by the tax rise

The tax rate is far lower than the current US top corporate tax rate of 35%.

Also expected in Mr Obama's budget proposal is a tax cut on earned incomes, including tax credits for child care and "second earners".

Mr Obama will also seek to ease restrictions on military and domestic spending in place since a budget deal in 2011.

Republicans in Congress have largely rejected many of Mr Obama's proposals for increased domestic spending and tax rises on corporations but support increased military spending.

Representative Paul Ryan, the Republican's top budget official, accused Mr Obama of exploiting "envy economics" in his proposal.

"This top down redistribution doesn't work," Mr Ryan told NBC.

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