Obama Needs to Act Big, Do Deal With GOP on Offshore Profits

Friday, 23 Aug 2013 06:52 AM

By Christopher Ruddy Moneynews

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Christopher Ruddy's Perspective: With a budget showdown looming in September, perhaps this is the moment for President Obama to act big and get a deal done with Congress.

Everyone's talking about the paralysis in Washington. Feeding this view is that, admittedly, both sides are thinking about scoring political points ahead of next year's congressional elections.

Meanwhile, the country founders. Economic growth has been stalled. The latest numbers show the GDP rose a paltry 1.7 percent in the second quarter, and the first quarter's GDP growth has been revised downward from 1.8 percent to just 1.1 percent.

We need 4 percent GDP growth to cure unemployment!

Worse, a flurry of retail sales reports show the economy is in deep trouble. JCPenny reported a second quarter loss of $568 million, Sears lost $194 million, and Macy's revenue slipped 0.8 percent in the quarter. Even Wal-Mart reported disappointing U.S. sales, down 0.3 percent in the quarter for stores open at least one year.

The economy was supposed to be at full throttle, with the recovery well underway. It should have been, with mortgage rates having hit historic lows in the past year.

But Obamacare and new fiscal cliff taxes, including an increase in the payroll tax this year, has added close to $275 billion in new taxes this year alone. And then there’s dramatically increasing private health insurance premiums, and oil is surging over $100 a barrel.

Cash is being sucked out of the economy to plug a digital deficit, with consumers having less money to spend. Less money in consumers' pockets yields less spending. This isn't rocket science, folks.

Alert: End of America's Middle Class a Startling Reality. Read More Here.

The country needs leadership as we remain in the grip of a long-term economic crisis. The leadership role in our government falls on the president. Obama is a reluctant leader. Chris Matthews just expressed the establishment sentiment: Obama hasn't demonstrated the leadership skills to govern. He mimicked similar comments made by Jonathan Alter in his recent bestseller "The Center Holds."

But the president does have an opportunity to do a deal with Congress and change that perception. He needs to do one this year, not next.

Here's where I see a path.

On July 30, the president delivered a speech calling for a business tax overhaul to jump-start the economy. While Obama's suggestion of cutting corporate income taxes from 35 percent to 28 percent seemed like a home run, he quickly scuttled his own proposal by making it DOA for congressional Republicans. He insisted on the elimination of some corporate deductions. This meant that overall, his plan must increase, not decrease, taxes on business.

The president's proposal also sought to repatriate offshore profits of major U.S. corporations. Nearly $2 trillion is sitting offshore, waiting to come home. But corporations don't want to pay 35 percent tax here, so they're holding the money in bank accounts in Bermuda, Hong Kong, and many other tax havens.

Obama proposed a plan that would allow corporations to repatriate offshore holdings back to the United States and pay a one-time "transition fee." He also proposed a permanent new minimum tax on foreign earnings.

Obviously, this proposal also is a nonstarter for Republicans.

Still, I see room for compromise here.

First of all, the president should put on the back-burner his sweeping corporate tax overhaul and focus only on the repatriation plan.

Republicans and Democrats all agree (well, most do) that the money would be better served back in the United States, to be used for capital investment and spending.

And both sides agree that corporations should pay some tax on these profits.

Suppose the president and Congress agree that during a one-year period, companies can return any and all foreign profits to the United States and pay a one-time tax of 15 percent.

And those companies who repatriate all or most of their profits this year would also be rewarded with the right to continue repatriation, at their discretion, at 20 percent after the first year for a period of, let’s say, 10 years.

Assuming that $1 trillion comes back to the United States under the plan, the Treasury would net $150 billion. My guess is that some $1.5 trillion would come back, yielding Washington $225 billion the first year alone. This would be a huge windfall.

What's important to remember is that this is new money coming into the U.S. economy. It's not a tax on existing consumer cash or a burden to companies. In fact, flush with U.S. cash, companies will have more capital for expansion and hiring.

The tax proceeds of such a plan could be split to satisfy conservatives and liberals. Some $100 billion could be used for deficit reduction, appealing to fiscal hawks. Another $100 billion or so could be earmarked for legitimate infrastructure projects.

Both Republicans and Democrats agree that investing in our roads, bridges, and other projects is worthwhile. (I say 'legitimate' projects here, not billion-dollar bullet trains to nowhere!)

Editor's Note: Should ObamaCare Be Repealed? Vote in Urgent National Poll

By offering a narrow proposal that appeals to both the GOP and Obama’s own base, the president can offer a proposal that is a win-win.

Obama may shrug and claim that Republicans will simply never go for it.

He's wrong. If the president offers a fair proposal that will help the U.S. economy and create jobs, the GOP would face a backlash next year if they don't sign on.

Here's the way to compromise and end the gridlock: Keep the path narrow. Make a small deal where all sides think they won. Develop trust in small steps, and there's no telling where Obama and Congress can go.

Christopher Ruddy is CEO and editor of Newsmax Media Inc. Read more Christopher Ruddy Insider articles — Click Here Now.

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