WASHINGTON: Donald Trump’s White House victory moves Apple, Pfizer, Microsoft and other big US corporations much closer than they have been in years to winning a big tax break on $2.6 trillion in foreign profits. Tax reform is shaping up as among the most fruitful areas for cooperation between Trump and his fellow Republicans, who held control in Tuesday’s elections of both the House of Representatives and the Senate.
Trump and congressional Republicans have separate, but similar, tax reform plans. Both would slash tax rates on businesses, simplify and cut individual taxes, and let companies bring overseas profits into the country at a low tax rate, raising prospects for a sweeping deal on taxes.
Bipartisan support for corporate tax reform has been growing as multinational companies have amassed tax-deferred profits abroad and brought continuous lobbying pressure over a decade for a tax break on them.
“On tax policy, he’s basically adopted the House blueprint as his approach,” said Rohit Kumar, co-leader of the tax policy services practice at Big Four accounting firm PricewaterhouseCoopers.
“There’s a better chance that something happens next year than there has been at any point in the last several years.” At the heart of the issue is a law that lets US companies hold foreign profits overseas without paying US corporate tax on them, unless and until those profits are brought into the United States, which is known as repatriation.
Corporations have $2.6 trillion stashed abroad under this law. That money could be repatriated any time, but businesses choose not to because it would incur the 35 percent statutory corporate income tax.
Trump and House Republicans, including Speaker Paul Ryan, would still need to agree on how to pay for lower corporate tax rates and on whether US-based multinationals should pay US taxes on future foreign profits.
Trump and congressional Republicans would also need support for tax reform from Democrats if they intend to present the package as a benefit for the country as a whole, analysts say.
Such proposals have stumbled before on Democrats’ objections that they are corporate give-away, and on Republicans’ insistence that they be paired with a cut in the corporate income tax rate.
Democrats could still block legislation they dislike from reaching the floor of the Senate, which requires a super majority of 60 votes to advance a measure, but there are procedural manoeuvres Republicans could use to bypass them.
The one-time surge in revenue that would result from repatriation could help fund another cornerstone of Trump’s campaign platform — a pledge to boost the economy through big investments in US highways, roads, bridges, airports and seaports.
Infrastructure spending was not a campaign priority for congressional Republicans. But a new job-creating program could appeal to Democrats and be valuable to lawmakers in the 2018 mid-term elections.
The four companies with the largest profits held overseas are: Apple Inc ($200 billion), Pfizer Inc ($194 billion), Microsoft Corp ($108 billion) and General Electric Co ($104 billion), according to March estimates by Citizens for Tax Justice, a corporate income tax watchdog group in Washington.