Obama budget could hit investment abroad

 

U.S. President Barack Obama

U.S. President Barack Obama on Monday sent to Republican-controlled Congress a $3.99-trillion budget proposal, which is likely to face opposition there especially regarding the policies to levy a one-time 14 per cent tax on the $2-trillion in profits currently held overseas by U.S. corporations.

The President hopes to use a significant part of this tax revenue, derived largely from technology and pharmaceutical corporations, to finance infrastructure spending on America's “crumbling roads and bridges.”

Though Republicans reacted negatively to the proposal they did not completely reject Mr. Obama’s serious offer on corporate tax reform, possibly owing to the fact that Republican Party members have in the past mooted the idea of a “repatriation tax” to finance infrastructure spending.

Yet opposition to the budget proposals is likely to focus more on what was described as Mr. Obama’s firm left-ward move in terms of higher taxes on wealthy Americans and increased spending to boost the incomes of the middle class through spending on sectors such as education.

The Obama administration, however, emphasised that the proposals for higher taxes and spending would offset each other to an extent and thus would not contribute to increases in the deficit.

With Congressional wrangling over deficit-reduction, cuts to safety net programmes such as Social Security and fears of automatic, “sequestration” cuts now on the backburner, the Obama administration appeared to have fixed “middle class economics,” a major theme of the President’s State of the Union address this year, in its sights.

While Mr. Obama’s proposals this week could theoretically reduce income inequality and improve middle-class welfare over the longer term, observers here noted that there was “virtually no chance” that Congress will adopt the tax increases that he has proposed.

His “move to the left” may also raise concerns in the camp of former Secretary of State and potential 2016 presidential candidate Hillary Clinton, who may fear that this could open her up to Republican arguments that a vote for her would be a vote for a potential fiscal crisis.