US tax bill im­poses steep levy on over­seas earn­ings

Enterprise - - Contents - By Barney Jopson and Sam Flem­ing

Repub­li­cans will im­pose a steeper-than-ex­pected levy on the tril­lions of dol­lars of earn­ings held by US com­pa­nies over­seas as Don­ald Trump’s party raises money to pay for the big­gest tax over­haul in a gen­er­a­tion.

Se­nate and House lead­ers un­veiled the fi­nal ver­sion of their tax re­form leg­is­la­tion, putting the Repub­li­cans on the cusp of de­liv­er­ing tax cuts of close to $1.5tn. As part of the pack­age they will im­pose a 15.5 per­cent one-off tax on off­shore cash, cou­pled with an 8 per cent levy on less liq­uid as­sets, a Repub­li­can aide said.

That is a stiffer “deemed repa­tri­a­tion” charge than ear­lier pro­pos­als from both cham­bers, un­der­scor­ing the late scram­ble for rev­enue as law­mak­ers en­sure their pack­age does not bust deficit ceil­ings agreed to dur­ing the ne­go­ti­a­tions.

The one-off tax rates rep­re­sent a sav­ing, how­ever, com­pared to what com­pa­nies would have paid if they repa­tri­ated their earn­ings un­der cur­rent law at a 35 per cent rate.

The mea­sure forms part of a broad agree­ment that sets Repub­li­cans up for the big­gest set of tax re­forms since pres­i­dent Ron­ald Rea­gan’s over­haul in 1986. Pas­sage of the bill would mark the first ma­jor leg­isla­tive vic­tory of the Trump pres­i­dency, af­ter a year in which health­care leg­is­la­tion floun­dered and the pres­i­dent has openly at­tacked mem­bers of his own party amid con­gres­sional dis­ap­point­ments.

The cen­tre­piece of the re­forms is a sharp cut in the cor­po­rate tax rate, which will drop to 21 per cent in 2018, not the pre­vi­ous 20 per cent the pres­i­dent tar­geted. Repub­li­cans claim the mea­sure will gal­vanise in­vest­ment and de­liver a step-change in US growth, but out­side econ­o­mists are ex­pect­ing more mod­est ben­e­fits: Janet Yellen, the Fed chair, pre­dicted “some mod­est up­lift” to growth from the re­forms.

As de­tails of the fi­nal pack­age emerged it be­came clear that, de­spite in­ten­sive lob­by­ing, not all busi­nesses had clinched their de­mands. Multi­na­tion­als will ben­e­fit from a no­tional end to the US’s tax­a­tion of fu­ture for­eign earn­ings, but that change is tem­pered by the in­tro­duc­tion of new mech­a­nisms to tax in­tel­lec­tual prop­erty and en­sure large com­pa­nies pay some­thing on for­eign earn­ings.

Ac­cu­mu­lated over­seas earn­ings, which amount to at least $2tn, will be sub­ject to a higher levy than in any of the ear­lier House and Se­nate pro­pos­als. For­eign banks also lost out in the fi­nal bill, as tax writ­ers brushed off con­cerns about pro­vi­sions bankers said would ef­fec­tively im­pose a tax penalty on cross-bor­der pay­ments between af­fil­i­ates of the same in­sti­tu­tion. A Repub­li­can aide said that the fi­nal pack­age had adopted the Se­nate’s pro­posed treat­ment of the pay­ments.

Among the other changes, the “al­ter­na­tive min­i­mum tax” on com­pa­nies will be abol­ished fol­low­ing in­tense last-minute protests by com­pa­nies.

Repub­li­cans are op­er­at­ing on ra­zor-thin mar­gins in the Se­nate as they at­tempt to rad­i­cally re­shape the tax code with no sup­port from the Democrats. But mo­men­tum be­hind the leg­is­la­tion grew as two pre­vi­ously waver­ing sen­a­tors — Marco Ru­bio and Bob Corker — said they would back the bill.

Mr Ru­bio, a Florida se­na­tor and for­mer pres­i­den­tial con­tender, had wanted to im­prove the pack­age’s sup­port for poorer fam­i­lies and in the end he won con­ces­sions to make the child tax credit more gen­er­ous. The de­ci­sion of Mr Corker of Ten­nessee to swing be­hind the bill was a ma­jor re­lief to GOP lead­ers, given that the deficit hawk had pre­vi­ously de­clined to sup­port the leg­is­la­tion be­cause of its im­pli­ca­tions for pub­lic bor­row­ing.

Party whips pre­par­ing to usher the bill through were still mon­i­tor­ing the health of Ari­zona se­na­tor John McCain, who is be­ing treated for side- ef­fects from brain can­cer treat­ment. Law­mak­ers said they hoped Mr McCain would be able to re­turn for a vote. A sec­ond Repub­li­can se­na­tor, Thad Cochran, is sep­a­rately re­cov­er­ing from a skin can­cer scare, but is ex­pected to be back on Capi­tol Hill.

Paul Ryan, the House speaker, gave a bullish up­date declar­ing: “We’re in the fi­nal stretch — and we’re ready to get this done for the Amer­i­can peo­ple by Christ­mas.”

In a state­ment greet­ing the re­lease of the fi­nal ver­sion of the pro­pos­als, the White House said: “By low­er­ing tax rates, sim­pli­fy­ing the rigged and bur­den­some tax code and re­peal­ing the failed tax on lower- and mid­dle-in­come house­holds known as the Obama care in­di­vid­ual man­date, this leg­is­la­tion will grow our econ­omy, raise wages and pro­mote eco­nomic com­pet­i­tive­ness.”

Un­der the deal, the top rate of in­come tax will drop to 37 per cent from 39.6 per cent, in a move that will heighten crit­i­cism of the pro­pos­als as overly gen­er­ous to the rich and big business.

The bill also re­peals a cen­tral pil­lar of Obama care, adopt­ing a Se­nate idea that will al­low Mr Trump to claim he has struck a blow against Barack Obama’s re­forms af­ter fail­ing to scrap them in full. It will scrap Obama care’s re­quire­ment for ev­ery­one to have health in­sur­ance or pay a penalty, a man­date that many con­ser­va­tives view as an in­fringe­ment on in­di­vid­ual free­dom.

Oth­ers, in­clud­ing some mod­er­ate Repub­li­cans, say the re­quire­ment is nec­es­sary to keep in­sur­ance mar­kets func­tion­ing in the ab­sence of other re­forms. Party lead­ers won the pro­vi­sional sup­port of moder­ates for the mea­sure by pledg­ing to ad­vance health­care leg­is­la­tion in par­al­lel with the tax changes, but there was no sign of move­ment on a health bill.

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