Corporations are the cornerstone of both the House and Senate versions of the tax overhaul.
Both bills propose deep cuts in the corporate tax rate — from 35 percent to 20 percent. The bills also call for a territorial tax system to replace the current worldwide tax system, in which multinational corporations with headquarters in the United States are required to pay the U.S. tax rate if they want to bring profits back into the country.
The proposed changes would affect a wide range of Massachusetts companies. As Bloomberg has reported, both tech and pharma companies, in particular, are expected to benefit.
But WBUR reached out to a dozen of the largest companies in Massachusetts by market cap, and nearly all of them declined to offer a response to the tax bill.
TJX, for example, told us: “We wouldn’t have anything to add to your story on tax reform.”
State Street said: “We wouldn’t be able to comment at this point on what it means for State Street, as there are still many unknowns — so we prefer not to speculate.”
Even New Balance, which U.S. House Speaker Paul Ryan visited in July to tout his plans for a change in the corporate tax structure, declined our interview request.
In fact, the only large company that offered any on-the-record insights was GE, in a written statement after the Senate vote:
GE commends Congress and the White House for their commitment to comprehensive tax reform. GE supports the Senate tax reform plan because it would upgrade the U.S. to a territorial tax system, bring rates in line with other countries, and allow U.S. businesses and workers to compete fairly around the world, so it’s the quality of our products that determine whether we win global deals, and not tax differences.
But hesitation to comment shouldn’t be interpreted as opposition to the corporate adjustments in the tax bills.
“Of course, a lower corporate tax rate is going to benefit them, but they don’t really want to talk about — and they may not even know at this point what they’re gonna do with an extra 15 percent that they’re not paying in taxes,” said Christina Rice, director of the graduate tax program at Boston University School of Law, and who used to work with some of the biggest companies in Boston on tax compliance at Ernst & Young.
Part of the hesitation may also be political.
“The corporate tax currently is broken,” said Mihir Desai, a professor at Harvard Business School and Harvard Law School, whose work was cited (albeit somewhat misinterpreted) by the White House Council of Economic Advisers. “Bringing down the rate and switching the territorial regime so we don’t tax corporations on their worldwide income — both of those are really smart moves.”
Desai pointed out that the U.S. has the highest statutory corporate tax rate among advanced economies, and so ultimately lowering the tax rate is good policy for corporations and, ultimately, probably good policy for the United States.
However, he added, “It’s the rest of the reform that actually is problematic.”
Desai said the overall tax bill is “fiscally irresponsible” and “somewhat regressive” over time. And so even if the core of the bill — the corporate tax — is beneficial for a company, it’s not advantageous for a business to talk about that.
“What we’ve observed in the recent past has just been a kind of remarkable upsurge in populism. And a kind of demonization of corporations. So, I think they probably want to lie low, more than anything else,” explained Desai.
That’s even as Desai said Boston may uniquely benefit because of its presence of many corporate headquarters.
One benefit, as GE singled out, is the onetime repatriation tax that would, in theory, incentivize companies to bring their profits from overseas back to the U.S.
Currently, many companies keep a large share of their profits overseas so they don’t have to pay the 35 percent statutory U.S. tax rate.
So, Biogen for example, had 66 percent of its cash overseas, the company said in its third quarter earnings call. That translates to more than $4 billion.
Traditional C corporations are covered under the changes above. But a lot of business income has migrated to something called pass throughs.
Desai said roughly 60 percent of business income is now in pass throughs.
Under current law, any profit from a small business can “pass through” to the owner, and then be taxed at the owner’s individual tax rate, which could be as high as 39.6 percent. This is a common practice in real estate, in particular.
The House bill dropped the top tax rate for income made through pass-throughs from 39.6 percent to 25 percent.
And the Senate bill would continue to allow owners to file taxes for their company at their individual rate. But it would allow owners to deduct 23 percent of that pass-through income.