Legislation

Winners and losers in the Senate tax bill

A week ago, the Senate passed its tax bill, which featured large permanent cuts for corporations along with temporary tax breaks for individuals and private businesses. But the bill also contained significant last-minute changes, and experts are still working out its implications as the House and Senate prepare to negotiate a final deal. We talked to tax experts and looked at the latest independent analyses to game out some of the early winners and losers.

WINNERS

The rich

Despite the president’s repeated claims to the contrary, the biggest gains in the tax bill go to wealthy individuals, heirs and business owners.

The Senate bill raises the threshold on the estate tax, which currently only applies to the top 0.2 percent of inheritances, and raises the income threshold on the top tax rate, which is also lowered from 39.6 percent to 38.5 percent. The rich are more likely to benefit from changes to pass-through income as well.

Overall, 62.2 percent of the Senate’s tax benefits would go to the top 20 percent of households in 2019, according to an analysis by the nonpartisan Tax Policy Center, with 15.3 percent going to the top 1 percent. The share going to the top 1 percent would rise over time to 62.1 percent in 2027 as inflation reduces some middle-class benefits and temporary changes expire, although supporters claim they would be renewed.

Corporations

The crown jewel of the Senate bill, just like the House bill, is a major reduction in the top corporate tax rate from 35 percent to 20 percent.

Senate Republican leaders faced pressure to retreat from the 20 percent number in the run-up to final passage in order to preserve or add tax benefits elsewhere. The White House has since signaled it might be open to a higher 22 percent rate, but conservative anti-tax groups are pushing lawmakers hard to stick to 20 percent.

There are also potentially big benefits for companies with international holdings. Many corporations defer bringing profits from abroad back into the United States, since they avoid paying taxes on them until they do. The bill switches to a new territorial tax system in which the companies would have to pay taxes on foreign earnings, but at a much lower rate of 14.49 percent on liquid assets and 7.49 percent on revenue that’s been reinvested.

That could be a boon for a company like Apple, which has major assets parked abroad. Richard Harvey, a tax professor at Villanova University who has testified before the Senate on Apple’s tax affairs, estimates the tech giant would save $47 billion in taxes versus the cost of repatriating profits under current law. The estimate was first published in the Financial Times.

Other multinational corporations that stand to gain from the foreign tax changes under Harvey’s calculations, which are based on company financial statements, include Pfizer, with $36 billion in potential savings; Microsoft, with $28 billion; and Google, with $15 billion.




Image: PORTUGAL-TECHNOLOGY-WEBSUMMIT

People pass by the Google logo at the Web Summit in Lisbon, Portugal on Nov. 8, 2017.