President Barack Obama's targeting of future foreign earnings of US multinationals and past hoarded profits sitting overseas – of which they are tens of billions of dollars flowing through and parked in Ireland – should not cause any Irish corporate executives to lose sleep.
As part of a $4 trillion (€3.5 trillion) budget sent to Congress, Obama is proposing to increase taxes on America’s wealthiest people and largest corporations to fund tax benefits to help the middle class.
A central plank of his budget is a proposal to raise more than $500 billion by imposing a once-off 14 per cent tax on an estimated $2 trillion hoarded by US multinationals offshore and a mandatory minimum tax of 19 per cent on all their future profits earned overseas.
These measures, which need the support of the Republican-controlled Congress to take effect, will affect big-name US employers in Ireland: the likes of Apple and Google, which route vast sums of global income through Ireland. California-based Apple told a Congressional investigations committee in 2013 that it had $74 billion stored in Irish subsidiaries. To Obama, this is American money made by an American company that should be taxed for the benefit of the American people. With little political support in Congress, Obama's nothing-to-lose budget proposals, presented under the banner of "middle-class economics," go further than a 2004 measure introduced by his predecessor, George W Bush. He gave US companies, with the support of Congress, the last opportunity to repatriate profits, albeit at a far lower discount tax rate.
That measure had little effect on the Irish operations of US multinationals. Obama’s plan would levy taxes on warehoused foreign profits even if the US corporations decided not to bring their cash home. Given that the discounted rates Obama is proposing are far higher than Republicans want – and are on a mandatory rather than voluntary “repatriation holiday” basis – the measures are unlikely to pass on Capitol Hill given the majorities Republicans hold in both houses of Congress.
Obama’s opponents are unlikely to concede changes to the US corporate tax system, which incidentally they agree are needed, outside a broad overhaul of the broken American tax code. The president’s plan is likely to prove far too ambitious, particularly when relations are so poor with Republicans.
Consider this an opening position in yet more deeply partisan negotiations that will struggle to go anywhere.
