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| Welcome to Wonkbook, Wonkblog's morning policy news primer byMax Ehrenfreund (@MaxEhrenfreud). Send comments, criticism or ideas to Wonkbook at Washpost dot com. To read more by the Wonkblog team, click here. Follow us on Twitter and Facebook. |
| Obama proposes taxing firms’ overseas earnings |
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The White House will release President Obama's budget Monday morning. The big news over the weekend is on the president's proposal to tax corporations' earnings overseas. What you need to know about that plan is in this newsletter, but there will surely be a few more surprises later on, so check back on Wonkblog for more.
What's in Wonkbook: 1) The president's budget 2) Opinions, including Bruni on Disneyland and measles 3) Romney won't run, and more
Number of the day: 2.6 percent. That was the rate of economic growth in the fourth quarter of last year. Chico Harlan in The Washington Post.
The president's proposal reopens the debate over corporate tax reform. "Mr. Obama wants U.S. companies to pay a 14% tax on the approximately $2 trillion of overseas earnings they have accumulated, a White House official said Sunday. They would face a 19% minimum tax on future foreign profits. Companies could reinvest those funds in the U.S. without paying additional tax. ... Doug Holtz-Eakin, a conservative economist and former adviser to GOP presidential candidates, said the proposal appears to be a starting point for broader negotiations with lawmakers. 'The good news seems to be that the administration has agreed that lockout [of overseas profits] is an important phenomenon,' said Mr. Holtz-Eakin."Nick Timiraos and John D. McKinnon in The Wall Street Journal.
Chart of the day: U.S. firms have $2.1 trillion in accumulated foreign profits. General Electric alone has $110 billion. The Wall Street Journal.
Where did those piles of cash come from? "For years, many other countries have been slashing corporate-tax rates in an effort to hold on to company headquarters and jobs and attract new investment. They also have moved to a system known as territorial taxation that generally seeks to tax firms only on their domestic profits, not their global earnings, as a further inducement to firms. As a partial concession, the U.S. for many years has allowed firms to defer federal tax on their foreign earnings until the money is brought home—a sort of hybrid of world-wide and territorial taxation. But the result has been anything but a happy medium. As the tax differential has grown between the U.S. and the rest of the world, U.S. firms have chosen to leave more earnings offshore, where the U.S. tax is deferred. That means they typically can't make use of the cash for dividends, stock buybacks or domestic reinvestment. Some have even sought to move overseas to escape the U.S. tax system and reunite with their cash." John D. McKinnon in The Wall Street Journal.
The messed-up U.S. tax system is one reason that many corporations keep relocating their headquarters abroad."Companies with global operations invest heavily in legal and accounting advice that helps locate as many profits as possible in low-tax foreign countries — places like Ireland and Bermuda. A simple example is that a company can decide all its patents are owned by its Irish subsidiary. Its subsidiaries in higher-tax jurisdictions need to license the right to use those patents from the Irish subsidiary. That makes those other subsidiaries not-so-profitable and the Irish subsidiary super-profitable. Because the Irish profits would be subject to taxation if they were transferred back to the US, the profits simply aren't transferred." Matthew Yglesias at Vox.
The money raised would be used for public works and infrastructure. "Finding a way to enact a new federal infrastructure spending plan has been an unattainable goal on Capitol Hill for several years. Speaker John A. Boehner (R-Ohio) hoped to pass a new highway bill shortly after the GOP took control of the House in 2011 but has struggled to build support among skeptical conservatives. Obama sought to preempt GOP opposition to his plan in an interview televised before Sunday's Super Bowl. 'I think Republicans believe that we should be building our infrastructure. The question is, how do we pay for it? That’s a negotiation that we should have,' he told NBC News in the pregame interview broadcast from the White House." Juliet Eilperin and Ed O'Keefe in The Washington Post.
Your guide to the budget, starting with the basics. The Washington Post.
KRUGMAN: Proposing a budget increase takes intellectual courage. "Faced with mass unemployment and the enormous waste it entails, for years the Beltway elite devoted almost all their energy not to promoting recovery, but to Bowles-Simpsonism — to devising 'grand bargains' that would address the supposedly urgent problem of how we'll pay for Social Security and Medicare a couple of decades from now. ... Discussions of short-run fiscal and monetary policy are politically charged. Oppose austerity and support monetary expansion and you'll be lambasted by the right; do the reverse and you'll be criticized and maybe ridiculed by the left. I understand why it's tempting to dismiss the whole debate and declare that the really important issues involve the long run. But while people who say that kind of thing like to pose as brave and responsible, they're actually ducking the hard stuff — which is to say, being craven and irresponsible." The New York Times.
BRUNI: The wealthy also need to vaccinate their kids. "You can be so privileged that you’re underprivileged, so blessed with choices that you choose to be a fool, so 'informed' that you're misinformed. Which brings us to Disneyland, measles and the astonishing fact that a scourge once essentially eliminated in this country is back. ... It used to be that unvaccinated children in America were clustered in impoverished neighborhoods; now they're often clustered among sophisticates in gilded ZIP codes where a certain strain of health faddishness reigns. The New York Times.
DOUTHAT: Why are young liberals so angry? "Despite all the books sold by Thomas Piketty, the paths forward for progressive economic policy are mostly blocked — and not only by a well-entrenched Republican Party, but by liberalism's ongoing inability to raise the taxes required to pay for the welfare state we already have. Since a long, slow, grinding battle over how to pay for those commitments is unlikely to fire anyone’s imagination, it's not surprising that cultural causes — race, sex, identity — suddenly seem vastly more appealing."The New York Times.
Eyewitness testimony can be unreliable. "Over the past quarter-century, more than 1,400 people convicted of serious crimes have been proved innocent... But why were these people wrongly convicted? In a great many cases, one significant factor was faulty eyewitness identifications. Eyewitness testimony can be extremely powerful. When a witness with no motive to lie swears under oath that he or she personally saw a defendant commit a crime, it is hard not to believe the testimony." Thomas Albright and Jed Rakoff in The Washington Post.
In his budget, Obama will also propose making the tax credits for wind and solar energy permanent, along with more money for research. "President Barack Obama's fiscal 2016 budget proposes $7.4 billion to fund clean energy technologies and a $4 billion fund to encourage U.S. states to make faster and deeper cuts to emissions from power plants... Obama has made fighting climate change a top priority in his final two years in office. The White House sees it as critical to his legacy." Jeff Mason for Reuters.
Mitt Romney steps aside. He announced he will not mount a third campaign for president. Dan Balz and Philip Rucker inThe Washington Post.
About that one time Rand Paul wanted to set up his own national board of opthamologists... "The letters came from a young ophthalmologist in Kentucky. He was recruiting for an eye doctors' rebellion. 'We won't be trod upon,' he wrote, using the language of 1776. 'You can't promulgate injustice without consequences.' ... The saga began in the 1990s, when Paul — now a senator representing Kentucky and a GOP presidential contender — hatched a plan to put his family's free-market ideals into practice. He wouldn't submit to the establishment. He would out-compete it by offering doctors an alternative with lower fees and fairer rules. His do-it-yourself medical board lasted more than a decade, becoming one of the most complex organizations Paul ever led on his own. But it didn't work. Indeed, in a life of successes, it became one of Paul's biggest flops." David A. Fahrenthold in The Washington Post.
What's in Wonkbook: 1) The president's budget 2) Opinions, including Bruni on Disneyland and measles 3) Romney won't run, and more
Number of the day: 2.6 percent. That was the rate of economic growth in the fourth quarter of last year. Chico Harlan in The Washington Post.
1. Top story: Obama's budget will include tax on overseas earnings
Chart of the day: U.S. firms have $2.1 trillion in accumulated foreign profits. General Electric alone has $110 billion. The Wall Street Journal.
Where did those piles of cash come from? "For years, many other countries have been slashing corporate-tax rates in an effort to hold on to company headquarters and jobs and attract new investment. They also have moved to a system known as territorial taxation that generally seeks to tax firms only on their domestic profits, not their global earnings, as a further inducement to firms. As a partial concession, the U.S. for many years has allowed firms to defer federal tax on their foreign earnings until the money is brought home—a sort of hybrid of world-wide and territorial taxation. But the result has been anything but a happy medium. As the tax differential has grown between the U.S. and the rest of the world, U.S. firms have chosen to leave more earnings offshore, where the U.S. tax is deferred. That means they typically can't make use of the cash for dividends, stock buybacks or domestic reinvestment. Some have even sought to move overseas to escape the U.S. tax system and reunite with their cash." John D. McKinnon in The Wall Street Journal.
The messed-up U.S. tax system is one reason that many corporations keep relocating their headquarters abroad."Companies with global operations invest heavily in legal and accounting advice that helps locate as many profits as possible in low-tax foreign countries — places like Ireland and Bermuda. A simple example is that a company can decide all its patents are owned by its Irish subsidiary. Its subsidiaries in higher-tax jurisdictions need to license the right to use those patents from the Irish subsidiary. That makes those other subsidiaries not-so-profitable and the Irish subsidiary super-profitable. Because the Irish profits would be subject to taxation if they were transferred back to the US, the profits simply aren't transferred." Matthew Yglesias at Vox.
The money raised would be used for public works and infrastructure. "Finding a way to enact a new federal infrastructure spending plan has been an unattainable goal on Capitol Hill for several years. Speaker John A. Boehner (R-Ohio) hoped to pass a new highway bill shortly after the GOP took control of the House in 2011 but has struggled to build support among skeptical conservatives. Obama sought to preempt GOP opposition to his plan in an interview televised before Sunday's Super Bowl. 'I think Republicans believe that we should be building our infrastructure. The question is, how do we pay for it? That’s a negotiation that we should have,' he told NBC News in the pregame interview broadcast from the White House." Juliet Eilperin and Ed O'Keefe in The Washington Post.
Your guide to the budget, starting with the basics. The Washington Post.
KRUGMAN: Proposing a budget increase takes intellectual courage. "Faced with mass unemployment and the enormous waste it entails, for years the Beltway elite devoted almost all their energy not to promoting recovery, but to Bowles-Simpsonism — to devising 'grand bargains' that would address the supposedly urgent problem of how we'll pay for Social Security and Medicare a couple of decades from now. ... Discussions of short-run fiscal and monetary policy are politically charged. Oppose austerity and support monetary expansion and you'll be lambasted by the right; do the reverse and you'll be criticized and maybe ridiculed by the left. I understand why it's tempting to dismiss the whole debate and declare that the really important issues involve the long run. But while people who say that kind of thing like to pose as brave and responsible, they're actually ducking the hard stuff — which is to say, being craven and irresponsible." The New York Times.
2. Top opinions
DOUTHAT: Why are young liberals so angry? "Despite all the books sold by Thomas Piketty, the paths forward for progressive economic policy are mostly blocked — and not only by a well-entrenched Republican Party, but by liberalism's ongoing inability to raise the taxes required to pay for the welfare state we already have. Since a long, slow, grinding battle over how to pay for those commitments is unlikely to fire anyone’s imagination, it's not surprising that cultural causes — race, sex, identity — suddenly seem vastly more appealing."The New York Times.
Eyewitness testimony can be unreliable. "Over the past quarter-century, more than 1,400 people convicted of serious crimes have been proved innocent... But why were these people wrongly convicted? In a great many cases, one significant factor was faulty eyewitness identifications. Eyewitness testimony can be extremely powerful. When a witness with no motive to lie swears under oath that he or she personally saw a defendant commit a crime, it is hard not to believe the testimony." Thomas Albright and Jed Rakoff in The Washington Post.
3. In case you missed it
Mitt Romney steps aside. He announced he will not mount a third campaign for president. Dan Balz and Philip Rucker inThe Washington Post.
About that one time Rand Paul wanted to set up his own national board of opthamologists... "The letters came from a young ophthalmologist in Kentucky. He was recruiting for an eye doctors' rebellion. 'We won't be trod upon,' he wrote, using the language of 1776. 'You can't promulgate injustice without consequences.' ... The saga began in the 1990s, when Paul — now a senator representing Kentucky and a GOP presidential contender — hatched a plan to put his family's free-market ideals into practice. He wouldn't submit to the establishment. He would out-compete it by offering doctors an alternative with lower fees and fairer rules. His do-it-yourself medical board lasted more than a decade, becoming one of the most complex organizations Paul ever led on his own. But it didn't work. Indeed, in a life of successes, it became one of Paul's biggest flops." David A. Fahrenthold in The Washington Post.
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