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A new federal tax bill passed by the Senate yesterday and sent to President George W. Bush for signature will have a spotty effect on technology budgeting, according to one prominent analyst.
The tax bill, titled "American Jobs Creation Act of 2004," was designed partly to meet European Union objections to tax breaks for American exporters. It contains about US$136 billion in tax breaks over 10 years, with offsetting cutbacks on tax shelters.
Large Companies Benefit
It will be worth about one cent a share to Microsoft (Nasdaq: MSFT) and less to Oracle (Nasdaq: ORCL) through replacement of the much-debated Extraterritorial Income Tax, according to GoldmanSachs analyst Rick Sherlund. Microsoft will be able to repatriate about $1.64 billion for an income tax of about $86 million; it would be $570 million under existing rates. Oracle has $3.1 billion in foreign-source income to be recalled.
General corporate tax rates drop from 35 percent to 32 percent for "producers," which include traditional manufacturers as well as software developers, farmers and movie-makers. That cut is projected to total $76.5 billion over 10 years.
Offshore Profits Impacted
Most of the impact will be felt from the one-year tax holiday on offshore profits, allowing the repatriation of overseas revenues at 5.25 percent, down from 35 percent. That measure is projected to move $650 billion now parked overseas by multinational companies such as Oracle and Microsoft, boosting Treasury revenues by $2.8 billion but costing a total of $3.3 billion over 10 years.
The bill was approved by the Senate 69-17 after passing the House a week earlier by 280-41. Bush is expected to sign it, claiming it as support for the economy -- even though his Treasury secretary, John W. Snow, has strongly criticized it. Senate Finance Chairman Charles Grassley expressed confidence that it will be acceptable to the World Trade Organization and the European Union.
Differing Opinions
However, Grassley's confidence was not shared by all. Many Democrats and almost all Republicans voted in favor. But Sen. John McCain, R-Arizona, told the New York Times it is "the worst example of the influence of special-interest groups I have every seen."
Sen. John B. Breau, D-Louisiana, told the paper, "It's almost impossible to have a perfect tax bill."
Breau was critical of the bill, but supported it for provisions favoring oil producers and cruise ship operators. "You have to take the good with the ugly," he said. "In the end, you have to get things done."
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