Tax reform! That has been the cornerstone prize the Trump administration has promised since day one. And the lure of tax cuts for big business has been a big contributing factor to the stock market’s 24% gain since last year’s election.
But now the tax plan working its way through Congress doesn’t look all that great for big business. In fact, in its current form, the plan would result in a tax hike for many corporations!
Big multinational companies including Apple (AAPL) and General Electric (GE) would face as many as three new taxes amounting to $454 billion in new tax revenue over the next 10 years, according to analysis by Bloomberg.
Many companies would end up with a higher tax rate than their current effective rate.
As for the estimated $3 trillion in corporate earnings that are held offshore, the plan would tax those profits at rates as high as 12%, generating another $223 billion in revenue. So much for the repatriation tax break companies like AAPL, Microsoft (MSFT), Alphabet (GOOGL) and many others were looking forward to!
Plus, the plan in its current form is not exactly “revenue neutral” as Beltway politicians promised. In fact, the business tax cuts add $1 trillion to the deficit over 10 years.
And while the average American family would get a tax cut of about $3,500 … over a 10-year period, the national debt would grow by $4,644 per person over the same period!
New taxes on royalty income and on companies that earn “high returns” from offshore affiliates amount to an additional $231 billion tax bill. In fact, businesses that enjoy some of the highest profit margins face a higher overall tax rate, according to a spokesperson for accounting firm KPMG.
All is not lost however, thanks to well-paid Beltway lobbyists who are now working overtime to get their pet tax breaks restored.
Many industries that have branch offices for lobbyists in Washington, D.C., including the drug industry, homebuilders and even the National Federation of Independent Business (NFIB), have already expressed concerns about the plan. The NFIB even said it was unable to support the Republican proposal in its current form.
And the U.S. Chamber of Commerce weighed in on the tax plan by noting “a lot of work remains to be done to get the exact policy mix right.” Let the lobbying begin!
Bottom line: In the sausage-factory that is Washington, D.C., a LOT can happen before the tax plan becomes law. But for investors who were counting on tax breaks to keep propelling stocks higher, this could very well be a “buy the rumor … sell the news” event. That’s especially true if the long-awaited tax cuts end up being much less than expected.