Republican tax negotiators finalized their nearly $1.5 trillion in tax cuts on Friday after another raid on the overseas piggy banks of Apple (AAPL), Microsoft (MSFT) and Google-parent Alphabet (GOOGL).
The finalized version of the Tax Cuts and Jobs Act imposes a 15.5% tax on cash held overseas by those tech titans and other companies to avoid being taxed at the current 35% corporate rate, along with an 8% tax on illiquid assets such as real estate, raising $339 billion.
That's $40 billion more than the bill that passed the Senate in early December and $154 billion more than the initial Senate plan released one month ago. That original version would have set a 10% tax rate on cash and 5% on illiquid assets. Apple has $252 billion parked overseas, while Microsoft holds $128 billion and Alphabet $52 billion.
The S&P 500, Dow Jones industrial average and Nasdaq composite all rallied strongly Friday, hitting record highs on the stock market today amid growing confidence that the tax deal was nearing completion and had
Republicans are racing to get the legislation passed next week, before the GOP Senate majority shrinks, following Democrat Doug Jones' victory in Alabama's special election on Tuesday. At the moment, the bill can pass if two GOP senators oppose it, but the margin of error shrinks to one after Jones is sworn in sometime after Christmas. Yet those concerns pretty much evaporated on Friday afternoon, when Tennessee Sen. Bob Corker, the lone Republican to vote against the bill in early December, said he plans to vote for the final version. Maine's Susan Collins, another wavering vote, also signaled she was a yes Friday evening.
Major changes from the bill that passed the Senate include a 21% corporate tax rate, instead of 20%, but a start date of 2018, not 2019. The GOP deal also allows individuals to deduct $10,000 in state and local taxes of any kind, not just property taxes, as in the original version, to mollify California Republicans. The final bill also lowers the top individual tax rate to 37%.
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Republicans also satisfied Sen. Marco Rubio's demand that a bigger slice of the expanded child tax credit be made refundable in order to help working-class families with no income-tax liability.
The GOP bill expanded the child tax credit by $1,000, but the prior version only made $100 of the additional credit refundable. On Friday, Republicans bumped the expanded refundable portion to $400.
In addition to the corporate tax cut, the vast majority of businesses whose profits are taxed via individual tax returns also get tax cuts. Individual tax cuts, including a doubling of the standard deduction, lower rates and a bigger child tax credit are expected to expire after 2025, in line with the Senate bill. If those tax cuts are extended, as Republicans say they will be, the legislation will end up costing far more than the $1.5 trillion price tag.
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