US President Donald Trump has vowed to cut corporations some slack in the form of a tax break that may give Silicon Valley something to celebrate.
America taxes businesses' overseas money at 35 per cent when funds are repatriated to the States, so most technology firms don't bother to transfer their mountains of dosh and leave them offshore. There are now trillions of dollars sitting in overseas accounts, and Trump has a plan to bring those back home.
"We're punishing companies under our codes for being in the United States," the president told a rally at Farm Bureau Building in Indianapolis on Wednesday.
"We will impose a one-time low tax on returning money that is already offshore so that it can be brought back home to America where it belongs and where it can be put to work and work and work. The framework I've just described represents a once-in-a-generation opportunity to reduce taxes, rebuild our economy, and restore America's competitive edge."
Essentially, companies will be offered a one-off low tax rate to bring money back into the States, perhaps 10 per cent or so. This is a measure the technology industry has been lobbying for long and hard, but it's not a "once-in-a-generation" opportunity, as Trump put it, unless generations are getting really short these days.
Back in 2004, the previous Republican president introduced a similar supposedly one-off tax break on overseas earnings. Congress passed the Homeland Investment Act, which gave a tax holiday on returning funds on the understanding that it would be sloshed around for domestic investment.
Tech firms brought back $362bn using that legislation, but instead of investing the money, the vast majority was simply given to shareholders, a subsequent study by the National Bureau of Economic Research found.
With an estimated $2.5tn in overseas earnings currently stored outside the country, tech and other big savers are going to be salivating at the thought of getting that money back at a very low tax rate. While President Trump didn't specify the exact tax rate, in the past Tim Cook has said Apple wouldn't be bringing its money back until the tax rate was in single digits.
The tax proposals also contain more good news for the wealthy owners of tech giants. Not only is Trump proposing terms that would significantly reduce their personal tax bills, but he has also pledged to repeal the estate tax, which is currently 40 per cent on the 0.2 per cent of Americans who have enough liquid assets to qualify for it.
Not only would this tax break significantly benefit the Trump family, it would also make the financial planning of tech billionaires a lot easier. Currently they have to set up charitable trusts or other tax-efficient vehicles to pass on their hoards to the next generation.
Some in the field, like Bill Gates, won't be affected by this, since he has promised to give his fortune away and just leave his children "enough to do what career they want, but not enough to do nothing." ®