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President Donald Trump and his Republican allies in Congress will propose an overhaul to the U.S. tax code today that would lower the rate corporations pay and make major changes to the way that tech giants and other businesses are taxed on profits earned overseas.
Some of those changes sound in spirit like the sort of reforms that Apple, Google, Microsoft, IBM and others have lobbied Congress to adopt for many years. But Trump’s plan, which he will unveil during a speech in Indianapolis this afternoon, lacks many of the details that Silicon Valley likely needs in order to assess what the reforms actually mean for their bottom lines.
To start, corporate tax rates would fall under Republicans’ new framework to 20 percent, down from their current rate of 35 percent, senior Trump administration officials said this week.
It’s not the low rate of 15 percent that Trump had initially proposed, an idea that drew sharp skepticism even among Republicans in Congress. But the new 20 percent rate is coupled with a provision that allows companies to write off capital spending for the next five years, the administration officials explained on a briefing with reporters.
Taken together, it could mean smaller tax bills for the tech industry, depending on how the coming debate on Capitol Hill pans out. Abroad, meanwhile, the White House has proposed more sweeping reforms.
At the moment, the U.S. government taxes multinational companies on a worldwide basis — which means they have to pay U.S. rates no matter where they generate their income. Typically, though, that only happens when those companies return, or repatriate, their foreign profits to the United States.
That’s why so many tech giants have opted to stash billions of dollars overseas or reinvest them, aiming to avoid the 35 percent U.S. tax on those earnings. Apple, for example, has $246 billion in profits sitting overseas.
Trump’s plan, though, proposes two major changes. First, it would shift the U.S. to a territorial tax system, sparing companies like Apple or Microsoft from paying U.S. taxes on revenues earned in (and taxed by) other countries. And to get there, it would begin by slapping those companies with a one-time tax on their existing foreign earnings, which they could pay over a period of time, senior administration officials said.
For now, Trump’s top aides say they’re leaving it to Congress to set the precise tax rates on those off-shore profits. The White House has only proposed they adopt two different rates — one for cash, one for non-liquid assets — on foreign earnings.
But these and other unresolved details could spell the difference between support and opposition for Silicon Valley tech giants, which still described it as a “serious proposal” worthy of attention and praise.
“We share the goals of creating a globally competitive rate, moving to a territorial system and protecting the R&D tax credit,” said Dean Garfield, the president of the Information Technology Industry Council, which represents companies like Apple, Google and Microsoft in the nation’s capital.
But Garfield acknowledged — subtly — that there are still many unknown details that will affect the tech industry’s future support for Trump’s tax reform.
“This plan offers an important springboard for the committees to work from,” he said in a statement. “We look forward to reviewing legislative text when released and working with Congress and the administration to get a pro-growth tax bill to the president’s desk soon.”
Debate over those ideas now rests in the hands of Congress, where even in easier times, lawmakers have struggled to adopt major tax reform legislation. The stalemate is due in no small part to philosophical divisions between Democrats and Republicans as to whether wealthier individuals and corporations should have to pay more to the U.S. government. And those battles are sure to return in this iteration of tax reform, as Trump has proposed similarly sweeping changes to the taxes that families pay, too.
Nor has Trump offered a fully formed piece of legislation; the White House has left a number of crucial details, including issues around funding, to Capitol Hill. Further adding to the complexity is Trump’s toxic relationship with some in his own party as well as his Democratic foes in Congress.