WASHINGTON - The sweeping tax cuts adopted Wednesday by US lawmakers while reducing rates on corporations, also aim to encourage multinational businesses to repatriate huge earnings amassed abroad.
US corporations, notably in the tech and pharmaceutical sectors, have for years accumulated profits offshore to avoid the comparatively high US tax rates of 35 percent, although most companies in reality pay much less.
The stockpile of cash now stands at about $2.5 trillion, according to the congressional Joint Committee on Taxation.
In 2016, for example, Apple stashed more than $200 billion abroad, while Microsoft parked $100 billion, and Cisco, Oracle and General Electric all followed suit.
Some firms resorted to so-called corporate inversions, reverse mergers allowing them to be incorporated in low-tax countries, avoiding the US tax system altogether.
Last year, several inversion efforts, including the merger attempt by drug companies Pfizer and Allergan, drew the ire of American officials.
By dropping the top corporate rate to 21 percent from 35 percent and taxing only profits earned US territory, the reform represents an effort to make the United States more enticing to major corporations.
"Money frozen overseas and in parts of world and some of them don't even like us," President Donald Trump said Wednesday in remarks celebrating the tax bill's passage.
"And they had the money. Now they won't have the money long."
To help encourage earnings repatriation, the tax package includes a one-time, across-the-board tax break for companies that bring the cash back.
THE INCENTIVE REMAINS?
Businesses will have to make a one-time payment of eight percent or 15.5 percent, on repatriated foreign profits, depending on whether the assets are cash or investments. This could bring $220 billion to the Treasury, according to the Joint Committee on Taxation.
But Eric Toder, co-director of the Tax Policy Center, this particular policy measure would reward overseas investment.
"We are taxing them less on their foreign profits than on their US profits if they invest in low-tax countries," he told AFP.
After the tax bill is enacted, foreign profits will be taxed at a minimum of 10.5 percent -- including amounts collected by local authorities -- a level well below the 21 percent US rate.
Toder said congressional scorekeepers were assuming the lower taxes would result in higher revenues, given the larger volume of repatriated profits.
But this still encourages companies to invest abroad, he said.
"They have an incentive to report and invest income in low tax countries."
Industrial companies, such as makers of semiconductors, an industry prone to off-shoring like many that trade in intellectual property, welcome the new rules.
"We would have preferred lower repatriation rates but overall it's a strong bill for the semiconductor industry," Joe Pasetti, a senior lobbyist at the Semiconductor Industry Association, told AFP.
WILL IT WORK?
The tax plan also aims to encourage companies to be active again on US soil, in particular those in IP-reliant industries, he explains.
US revenues derived from foreign sales of patented products will be processed for tax purposes as if they were earned by foreign subsidiaries, at a rate of 10.5 percent rather than the new corporate rate of 21 percent.
"It's really competitive, much more competitive than the current system," Pasetti said.
The US Chamber of Commerce believes the benefits will be shared widely following the disappearance of the "outdated" former tax system.
"Our tax system will now welcome capital within our borders for myriad uses such as job creation, wage growth, and investment," Caroline Harris, vice president for tax policy at the chamber, told AFP.
However, critics are skeptical the higher profits will be used for those purposes.
In 2004, under then-president George W. Bush, Congress approved a similar tax break to encourage the repatriation of profits, and companies brought back about $312 billion, subject to a 5.3 percent rate.
But studies showed these funds were in large part used for share buybacks rather than for investments.
source: news.abs-cbn.com
NEW YORK - Wall Street pulled back on Tuesday as a technology stock rebound lost steam and enthusiasm from a tax-cut proposal waned, while copper prices fell steeply to their lowest point in 2 months.
The US Treasury yield curve flattened, with the difference between the yields on 5- and 30-year debt hitting its lowest in a decade.
A flatter yield curve is often an sign of worries about the economy, while market watchers also pointed to the drop in copper, which is an indicator of global demand, as another potential broader concern.
Wall Street's main indexes closed lower. Investors have been switching their bets among sectors in recent days capitalize on a US tax-cut package moving swiftly through Congress.
“We are still trying to sort out the winners and losers under tax legislation,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
Meanwhile, Tuz said, investors may be selling their stock winners from this year's record-setting rally "to lock some of that in or diversify some of it away into things that had not done as well."
The Dow Jones Industrial Average fell 109.41 points, or 0.45 percent, to 24,180.64, the S&P 500 lost 9.87 points, or 0.37 percent, to 2,629.57 and the Nasdaq Composite dropped 13.15 points, or 0.19 percent, to 6,762.21.
The S&P technology sector, which has lost momentum in recent days, rose 0.2 percent and was the only major group to end in positive territory. But the sector finished well below its session highs.
Investors have been selling technology shares recently, bidding up prices for banks, telecoms and transports in a rotation into groups expected to particularly benefit from passage of U.S. bill designed to slash corporate taxes.
The Republican-controlled U.S. House of Representatives voted on Monday to go to conference on tax legislation with the Senate, moving Congress another step closer to a final bill.
In Europe, the pan-European FTSEurofirst 300 index lost 0.12 percent, after posting its biggest gain in more than a month on Monday.
Europe's STOXX 600 technology index rose 0.6 percent.
MSCI's gauge of stocks across the globe shed 0.31 percent.
Copper lost 4.31 percent to $6,531.50 a ton as inventories rose, its biggest single-session decline in more than 2 years. Other metals, such as nickel and zinc, also fell.
Copper prices were also pressured by recent strength in the dollar, with many commodities denominated in the US currency.
“Today is copper traders questioning whether or not global growth is as strong as they were thinking," said William Delwiche, investment strategist at Baird in Milwaukee. "They are looking at the inability of bond yields to make a sustained move higher and causing them to question the strength in the economy.”
The dollar rose for a second straight session as the currency continued to benefit from optimism surrounding US tax reform.
The dollar index rose 0.12 percent, with the euro down 0.33 percent to $1.1825.
Benchmark 10-year notes last rose 7/32 in price to yield 2.3545 percent, from 2.379 percent late on Monday.
Oil rose, supported by strong demand, expectations of a drop in US crude inventories and an OPEC-led deal to extend oil output cuts.
US crude rose 0.38 percent to $57.69 per barrel and Brent was last at $62.94, up 0.78 percent on the day.
Spot gold dropped 0.7 percent to $1,266.63 an ounce.
source: news.abs-cbn.com
WASHINGTON -- US Senate Republicans made last-minute changes to their tax bill to secure enough votes to pass the sweeping legislation on Saturday and move on to negotiations this week on a final measure with Republicans in the House of Representatives.
The deals enabled leadership to get 4 wavering Republican senators on board with the legislation by addressing issues such as deductions for state and local property taxes and the tax treatment of so-called pass-through enterprises.
Republicans also agreed to changes to help pay for the deals, including higher tax rates on the repatriation of US corporate profits held overseas.
Following are some of the changes:
* STATE AND LOCAL PROPERTY TAXES: Senator Susan Collins got Senate Republican leaders to include a federal deduction for up to $10,000 in state and local property taxes in the legislation, which eliminates a similar deduction for state and local income and sales taxes.
The nonpartisan Joint Committee on Taxation, or JCT, estimates that the change will mean the loss of an additional $148 billion in federal revenue over the next decade, compared with a legislative proposal approved earlier by the Senate Budget Committee.
* PASS-THROUGHS: Under pressure from Senators Ron Johnson and Steve Daines, Senate Republican leaders increased to 23 percent from 17.4 percent a deduction for the owners of pass-through enterprises including small businesses, S-corporations, partnerships and sole proprietorships.
JCT estimated revenue loss versus earlier legislative proposal: $114 billion.
* FULL EXPENSING: Senator Jeff Flake, who had been a holdout over deficit concerns, agreed to vote "yes" after Republican leaders did away with an abrupt end to the full business expensing of capital investments after five years. Instead, the bill phases out full expensing in 20 percent increments over 4 years, beginning in year 6. Flake said Congress would not have been able to suddenly eliminate full expensing and that benefit would have been left to bleed red ink for years to come.
JCT revenue loss estimate versus earlier legislative proposal: $34 billion.
* MEDICAL EXPENSES: Collins also added language to reduce the threshold for deducting unreimbursed medical expenses for 2 years to 7.5 percent of household income from 10 percent.
JCT estimated revenue loss versus earlier legislative proposal: $4.6 billion.
* RETIREMENT SAVINGS: Collins persuaded Republican leaders to retain catch-up contributions to retirement accounts for church, charity, school and public employees.
No immediate JCT revenue impact estimate.
* INDIVIDUAL ALTERNATIVE MINIMUM TAX: Republicans rescinded an earlier provision to repeal the individual AMT but increased exemption amounts and phase-out thresholds to make the tax less onerous.
JCT estimated revenue gain versus earlier legislative proposal: $133 billion over a decade.
* REPATRIATION: Senate Republicans increased tax rates on the repatriation of US corporate profits held overseas to 14.5 percent for liquid assets and 7.5 percent for illiquid holdings, up from 10 percent and 5 percent, respectively.
JCT estimated revenue gain versus earlier legislative proposal: $113 billion.
* CORPORATE ALTERNATIVE MINIMUM TAX: Republicans decided to retain this tax, after initially proposing its repeal.
JCT estimated revenue gain versus earlier legislative proposal: $40.3 billion.
source: news.abs-cbn.com
WASHINGTON - Is it a giveaway to the rich or a relief for the middle class? A boon for business or unnecessary stimulus for an economy already at full employment?
The sweeping tax reform package adopted by a slim margin of 51-49 early Saturday by the Republican-controlled Senate has sparked fierce debate among economists.
It also has yet to be reconciled with a separate version passed by the House of Representatives.
But the proposal's main planks included a reduction in corporate tax rates from 35 to 20 percent, increasing some deductions for individual taxpayers while eliminating many others and reducing taxation on partnerships.
The White House portrays the new tax package as the largest tax cut in US history and says it is aimed at spurring growth and producing higher wages and corporate profits while encouraging tax-shy companies to repatriate their wealth.
One of the proposal's main boosters, Treasury Secretary Steven Mnuchin, recently touted a letter from nine economists who asserted that the first comprehensive tax overhaul in three decades would lift annual GDP growth by 0.3 percent over 10 years.
But a University of Chicago study found that among 38 economists, the overwhelming majority doubt growth will increase and nearly all believed it would balloon the national debt.
The Joint Committee on Taxation, a nonpartisan committee which estimates the cost of tax policies, also found Thursday the bill now passed by the Senate would add $1 trillion to the deficit.
Many economists argue that this kind of stimulus has limited impact when the economy is growing at its full potential pace.
Disagreements have at times turned personal, with former Labor Secretary Robert Reich, a Democrat, writing in an opinion piece on Wednesday that Mnuchin was either a "fool or a knave," accusing him of lying about the supposed benefits of the tax overhaul.
IS NOW THE RIGHT TIME?
Reich cited the findings of the Tax Policy Center, according to which over a decade most of the proposal's benefits are likely to go to the wealthiest one percent of Americans while the upper middle class would likely face a higher tax burden and the poorest would see only small tax cuts.
But according to Douglas Holtz-Eakin, one of the economists who signed the letter cited by Mnuchin, said the modified new tax code aims to boost production and supply, rather than demand.
Entrepreneurs are among the first who stand to gain, with corporate tax rates falling as much as 15 percentage points, supposedly down to a level in line with those in other developed countries.
But US companies have long benefitted from tax deductions that brought their effective tax rate down to around 21 percent.
Another boon for the business world: partnerships and other so-called "pass-through" companies whose profits are enjoyed directly by their owners -- and which account for half of corporate revenue and 90 percent of small businesses -- will see steep tax cuts.
Multinational companies also will be encouraged to repatriate their profits at a preferential tax rate.
According to Holtz-Eakin, these changes are all incentives for innovation and investment that will drive productivity in the United States.
However, as White House economic adviser Gary Cohn found while attending a business conference recently, many companies plan to use excess cash from the tax cuts to increase their dividend rather than invest in equipment or hire more workers.
President Donald Trump's administration argues that wages should rise after having stagnated for decades when accounting for inflation.
Holtz-Eakin said productivity gains should make hiring workers more profitable and cause companies to compete for available labor by offering higher salaries.
Others call the timing of such a tax overhaul into question, given that the world's largest economy is already close to full employment and the Federal Reserve is poised to pounce on any sign of inflation by raising interest rates.
Lloyd Blankfein, the CEO of Goldman Sachs, expressed similar doubts last month in an interview with Bloomberg.
"I can't say this is the moment where you want the most fiscal stimulus in the market, when we’re mostly at full employment, when GDP last registered at 3 percent," he said.
"I don’t know that this is the moment that you provide the biggest stimulus."
source: news.abs-cbn.com
NEW YORK - US stocks rose and the dollar edged higher against a basket of major currencies on Thursday after the US House of Representatives passed its version of a tax overhaul bill.
Earnings-related gains in Wal-Mart and Cisco also boosted stocks, and the MSCI index of world stocks rose after 5 consecutive daily losses.
The Dow Jones Industrial Average and the S&P 500 chalked up their biggest percentage gains in over 2 months.
The House approved a broad package of tax cuts affecting businesses, individuals and families, moving Republicans and President Donald Trump an important step closer to the biggest tax code overhaul in a generation.
The legislative battle now shifts to the Senate, where the Republican majority is much slimmer. Republicans can lose no more than 2 Senate votes and at least 2 GOP senators have already spoken against the Senate version of the bill.
"The tax plan isn't a foregone conclusion but it passed the lowest hurdle in the House," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.
"The even higher hurdle is to have something pass in the Senate. The reconciliation will be the real measure if it happens," he said.
The dollar index, which hit 93.813 on Wednesday, its lowest since Oct. 20, was also supported by a general improvement in risk appetite across financial markets. The index was last up 0.1 percent.
The Dow rose 187.08 points, or 0.8 percent, to 23,458.36, the S&P 500 gained 21.02 points, or 0.82 percent, to 2,585.64 and the Nasdaq Composite added 87.08 points, or 1.3 percent, to 6,793.29.
The pan-European FTSEurofirst 300 index rose 0.65 percent and MSCI's gauge of stocks across the globe gained 0.80 percent.
Oil prices extended their losing streak as rising US production and inventories threatened to undermine a rally sparked by tightening world supply as a consequence of OPEC's curbs on output.
US crude declined 19 cents to settle at $55.14 a barrel while Brent crude fell 51 cents to settle at $61.36.
US Treasury two-year yields hit a 9-year high as risk appetite recovered globally and a batch of neutral to solid economic reports put the Federal Reserve on track to raise interest rates in 2018.
The rise in 2-year yields pushed the curve to its flattest in a decade. The yield curve has declined for four straight days.
The gap between US 2-year note and US 10-year note yields contracted to 63.2 basis points m the tightest since November 2007. The gap was last at 65.1 basis points.
In late trading, the 10-year Treasury yield rose to 2.355 percent, from 2.335 percent late on Wednesday. US 2-year yields climbed to a 9-year peak of 1.716 percent, from 1.691 percent on Wednesday. Two-year yields were last at 1.712 percent.
source: news.abs-cbn.com
MANILA – Removing tax incentives for foreign companies seeking to outsource operations in the Philippines can discourage investments, an industry official said.
The business process outsourcing industry employs roughly 1 million Filipinos and is a key source of dollars that help stabilize the local currency.
“China is offering a lot of the incentives, here we are trying to take some things out. It’s like are we pushing the investors out,” said Contact Center Association of the Philippines president Jojo Uligan.
“Mahihirapan tayo (We’ll have a hard time). We can no longer compete,” he said.
The tax regime, however, is not the only consideration of investors, said finance undersecretary Antonette Tiokno. – from a report by Jekki Pascual ABS-CBN News.
source: news.abs-cbn.com
