America's high rate of corporate tax – 35 per cent – gives United States multinational companies with substantial foreign earnings a huge financial incentive to keep their profits offshore. The tax due on their overseas earnings is payable only when these are repatriated to the US. The reluctance of multinationals to do so, and to keep their profits in low tax countries including Ireland, has deprived the US of revenue to finance its budget needs. President Barack Obama has outlined his plans to change that; proposing two taxes to raise revenue. One would be a 14 per cent tax levied on the accumulated overseas profits of US companies – to raise $238 billion (€210 billion) and the other a minimum 19 per cent tax on the future overseas earnings of these companies.
Mr Obama’s intentions are, however, almost certainly doomed to failure. The Republicans control both the Senate and the House of Representatives and, facing a presidential election next year, they are unlikely to accept his tax plans. Mr Obama, now a lame duck president, has presented these reforms to set the agenda for the political debate over the next 18 months. His proposals, he said, would “put more money in middle-class pockets, raise wages, and bring more high-paying jobs to America”. The president has given the Democratic Party a policy platform on which to contest the 2016 elections, and presented Republicans with a challenge on corporate tax reform. Both parties have discussed the issue extensively in the past, but established little common ground.
For Ireland, Mr Obama's plans would be of greater concern if they were likely to be realised. Major multinational companies in the technology and pharmaceutical sectors that have located here – and benefited from a low tax regime – would be facing a much higher tax bill. Like the British government, which last December announced a new 25 per cent "Google tax" to stop multinational companies from dodging tax on their UK profits, President Obama's proposals reflect a legitimate concern for greater equity in the tax system.