US & Canada

Obama proposes tax rises to end budget caps

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Media captionPresident Obama: "This country does its best when everyone gets a fair shot"

US President Barack Obama has sent a $4tn (£2.6tn) budget proposal to Congress with significant tax rises, primarily on firms and the wealthy.

Mr Obama's plan would use new taxes to remove current budget caps and fund infrastructure projects.

He spoke at the US homeland security department, which faces a funding shortage at the end of February.

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

Mr Obama's spending plan is considered the opening gambit in an expected negotiation with Congress.

Republican budget officials are expected to put forward their own proposals in a few weeks time.

Image copyright AP
Image caption Mr Obama said he would not increase military spending within similar rises in domestic programmes

The opposition party accuses Mr Obama of reverting to tax-and-spend policies without changing the biggest areas of government spending - social security and health programmes.

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

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

Among the new tax rises is a one-off 14% tax on US profits made overseas, as well as a 19% tax on any future profits as they are earned.

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

Image copyright AP
Image caption Republicans in Congress are expected to respond with a counter proposal in the spring

The $238bn (£158bn) raised would be used to fund infrastructure projects across the country.

Research firm Audit Analytics calculated last April that US firms made $2.1tn-worth of profits abroad.

Other tax proposals include:

  • tax credits for child care and "second earners"
  • earners taxed at the top rate would only be able to take tax deductions at a lower rate
  • an increase in capital gains tax from 20% to 28%
  • a tax rise on cigarettes over 10 years from $1.01 per pack to $1.95

Mr Obama also called for an end to spending caps on the military and most domestic agencies first put in place in 2011.

Calling the caps "mindless austerity", Mr Obama's budget eliminates such limits for the six years they are scheduled to remain in place, representing a spending increase of $362bn.

Mr Obama warned congressional Republicans on Monday that he would not accept lifting caps on national security spending without doing the same for domestic programmes.

"I will not accept a budget that severs the vital links between our national security and our economic security," he said ."Those two things go hand in hand."

The spending plan also includes proposals Mr Obama promised in his State of the Union speech last month, including free community college tuition.

Image copyright Reuters

Apple and the US tax grab

Kim Gittleson, BBC News

To understand just how convoluted the world of US corporate tax has become, you only need to look to one company: Apple.

The technology giant just announced on Monday that it will raise money via US debt markets in order to return money to shareholders - despite reporting the biggest quarterly corporate profit in history last week.

That's because Apple keeps most of its profits overseas, in places like Ireland and Bermuda, where corporate tax rates are lower than the 35% imposed by the US government.

The company's accountants have decided it is cheaper to raise money via so-called "iBond" sales than to take any of that money back into the US.

No-one in the US - Republicans and Democrats - think this is a good thing, but President Obama's solution is not supported by Republicans, and even some Democrats.

Democratic Senator Barbara Boxer and Republican Rand Paul recently proposed a separate plan for a tax repatriation holiday. That's when the US government agrees to let firms bring money back into the US at a one-time lower tax rate.

While this is the method preferred by corporations, studies have shown that repatriation holidays have ultimately cost the US government money.

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