Big tech companies and their top executives have been outspoken this year about immigration reform, net neutrality, and data privacy–but tax reform is by far the most important policy fight for them in 2017. And their lobbying filings show it.
While most of the people who work at tech companies are not Trump supporters, the companies themselves could benefit hugely from the new tax code currently being proposed by the administration and GOP leadership in Congress.
Tech companies like Apple and Microsoft have for a long time balked at the 35% corporate tax the current tax code requires them to pay on worldwide profits returned to the U.S. To avoid paying, the companies have parked as much of their profit as possible in overseas subsidiaries in countries like Bermuda and Ireland, where tax rates are low.
The Big 5 tech companies–Apple, Alphabet, Amazon, Facebook, and Microsoft–currently have a combined $457 billion held in overseas subsidiaries. Apple holds more profits overseas than any other company, with Microsoft not far behind.
Zion Research Group estimates that U.S. companies in general have $2.8 trillion in profits parked in overseas affiliates.
Donald Trump campaigned on a promise of reforming the tax code, and part of that promise was giving corporations a chance to bring their overseas cash hoards home at a greatly reduced tax rate. A little more than a year after the election of Trump, a GOP-led tax reform package making its way through Congress. The House version of the tax bill was approved November 16, and the Senate version is heading for a crucial showdown vote on the Senate floor.
Both bills contain language on the “repatriation” of corporate cash back to the U.S. Specifically, the bills propose that all the overseas cash be automatically repatriated and taxed at a low rate. The Senate bill has that rate at 10% for profits held in cash. Companies would be credited for taxes already paid overseas on the profits, and would be allowed to pay the remaining over several years.
This would be a great deal for U.S. companies like Apple and Microsoft, who abhor holding so much money so far from home where they can’t put it to work. The New York Times points out that the GOP plan would effectively reward U.S. multinationals’ long-term strategy of avoiding taxes by parking profits offshore.
Going forward, the House and Senate tax plans would lower the corporate tax rate from 35% to 20%. It would also relieve U.S. multinationals of the obligation to pay taxes on profits earned in other countries, requiring them to pay taxes on profits earned at home.
As such, the big tech companies have amped up their lobbying efforts in the capital on tax policy. The Big 5 tech companies increased their lobbying spending in the third quarter of 2017 (the last reporting period) by a collective 24.3% compared to the same quarter in 2016. Microsoft alone had 81 lobbyists from 16 different firms (and Amazon had 64 lobbyists) working for them to influence Congress specifically on tax issues in the first three quarters of 2017, according to Public Citizen.
Donald Trump likes to brag about the high-flying stock market in 2017; in truth the markets are high on the hope that the GOP can pass tax reform this year, including the repatriation deal. Zion Research Group estimates that S&P 500 companies could save a combined $570 billion if the GOP repatriation plan became law.
Donald Trump and other Republicans appear to assume that the tech companies will dutifully use the repatriated money to set up new manufacturing facilities in the U.S., creating millions of jobs. But it hasn’t worked that way in the past. When George W. Bush signed into law a one-time tax amnesty for offshore profits in 2004, companies used the incoming cash mainly for things like executive bonuses and pay increases, share buybacks, and stockholder dividends. The exodus of tech manufacturing jobs to Asia continued apace.
By and large, the manufacture of tech products isn’t likely to return to the U.S. The economics simply don’t make sense, and tax breaks alone aren’t going to change that.