These days, Washington is more or less a town that runs on Kabuki, and one of the biggest dances of all is the president's annual budget request to Congress. With the formal appropriations all but derailed, it serves as little beyond a political document. But it offers insight into White House priorities, and often plays an important role in setting the terms of the debate.

This budget request--President Obama's second-to-last--includes broad new proposals, including a global 19 percent minimum tax for U.S. corporations. After being criticized for staying out of the debates on tax reform, the administration has offered a potentially transformative proposal.

Fundamentally, the budget request isn't as far from Republican proposals as you might think. It reflects a quietly growing, bipartisan consensus in Washington that a global minimum tax is needed to fight offshore tax evasion. 

There just isn't agreement on what that minimum tax would look like, what it would target, and how it would work--or, ultimately, what the goal of the U.S. tax policy should be.

This proposal--as well as many Republican plans--ultimately deals with deferral of overseas profits, one of the backbones of U.S. tax policy, which goes back more than a century.

The U.S. taxes all of the profits of a U.S. company--whether they're earned in Indiana or Indonesia--but only taxes foreign earnings when they're repatriated. As a tax policy, it doesn't necessarily have a justification--it's just an unambiguous right that U.S. corporations have. It stems from the belief that a subsidiary is still a separate legal entity that can withhold a payment to its parent as long as it chooses, and that the U.S. Treasury can only grab the cash once it's taxable income in the U.S. There are some situations where it might seem reasonable, however. If, say, a U.S. corporation buys a plant in Germany that makes products for Germans, shouldn't it be able to invest the profits back into that plant, without Uncle Sam taking a cut?

That's a situation where deferral might make sense. (Or not--folks disagree on this.) But Congress has, over the years, identified situations where deferral was deemed to be manipulative or unfair. In 1962, President John Kennedy wanted to do away with tax havens that allow companies to manipulate interest, dividends, royalties, and other seemingly passive transactions. But rather than eliminating deferral entirely, Congress opted to create Subpart F, which targets such transactions and immediately brings that income home, to be taxed at the full U.S. corporate tax rate.

Since then, as the world has continued to globalize and physical manufacturing has been supplanted by an online economy, the opportunities for manipulating deferral have grown. Wrinkles in Subpart F rules have allowed for the creation of so-called Double Irish tax structures, shielding billions from what would otherwise be U.S. taxable income. The Caribbean is filled with ghost-like companies containing a slew of intellectual property rights, huge amounts of income, and little else. The very nature of the digital economy has made pegging the location and value of economic activity a giant headache for tax administrations around the world.

Many of the policy proposals to deal with this situation have focused on further refinement of the Subpart F rules. U.S. House Ways & Means Committee Chairman Dave Camp (R.-Mich) included in his 2014 tax overhaul plan a new Subpart F category, "foreign base intangible income," which would tax income from intangible assets at a rate of 15 percent, in countries that have a tax rate of 15 percent or lower. (Camp's plan would also provide a tax credit so that intangibles income would be taxed at the same rate if it were in the U.S.)

The proposal is remarkably similar to a White House proposal--in previous budget requests, but not this one--to target "excess returns" of intangibles transferred from the U.S. to low-tax jurisdictions.

The idea behind these plans--expressed both by Camp and administration officials--is that these new, targeted taxes would act as safeguards to remove the incentive for companies to shift their income to low-tax jurisdictions. That is a simpler--and likely more successful--way to prevent income shifting, rather than trying to fine-tune all of the tax rules to make it impossible in the first place. If the money is taxed by someone, somewhere, then most of the problems will go away--or so the thinking goes.

"You can either really focus in on getting those pricing rules right, which we all know is very hard, or you can have more prophylactic rules that say, 'If you mess around with pricing, we're going to get you one way or another, because we're just going to automatically tax the income that you played around with,'" said Robert Stack, Deputy Treasury Secretary for International Tax Policy, at a KPMG webcast in August of 2013.

So, fast-forward to this week. Obama's excess returns proposal is gone from his 2016 budget--replaced by his much broader 19 percent minimum tax. It provides an 85 percent exemption for foreign taxes paid, so it would mainly affect companies doing business in countries with tax rates lower than 20 percent. There are other exemptions in the proposal, but it is no longer targeted simply to intangibles income. It would apply to any company doing business abroad, whether it makes asphalt or algorithms. And it would apply immediately--deferral would now be out of the picture.

"When you kind of take stock of all of the different proposals that are out there, a lot of it fundamentally goes to the question of the definition of the problem," said Ray Beeman of Ernst & Young LLP, who worked as counsel to the House Ways & Means Committee under Camp and helped pen Camp's 2014 plan. “If you go beyond intangible income, I think you're defining the problem differently than what is commonly viewed as stripping the U.S. base.”

Is doing business in a low-tax country automatically wrong? Or is it only wrong to manipulate the rules to take advantage of one country's infrastructure, education system, and customers while taking advantage of another country's low tax rate?

And what is really is the problem with the U.S. tax system? Is it that taxpayers can use new, digital transactions to skip around long-established rules, creating piles of money where there is little economic activity? Or is it, rather, that it's fundamentally wrong that U.S. companies can do business--real, actual business--abroad, and not pay a dime to Uncle Sam until they want to bring the money home? 

It's a debate the administration has now set, and presumably hopes to continue if Congress ever does take up a bipartisan tax overhaul. And as an opening bid, Obama's plan doesn't necessarily indicate that the White House has given up on a targeted approach--this is just the beginning of a negotiation.

Access even more in-depth analysis and expertise with a free trial to the Premier International Tax Library.