The Good, the Bad and the Ugly: Industry Reaction -2-
Auto makers plowing billions of dollars into developing electric cars are nervous about losing an income-tax credit of up to $7,500 for consumers buying the advanced vehicles after the House tax bill eliminated it. (The Senate bill preserves the credit.)
Car companies view the tax credit as key to luring consumers to electric or plug-in hybrid vehicles that are thousands of dollars more expensive than gasoline-powered counterparts.
They and their Washington lobbyists have been vocal that eliminating the tax credit could curb electric-car sales and make it difficult for them to meet looming environmental regulations, which call for significant curbs on emissions and increases in fuel economy.
Manufacturers have long complained about the difficulty of finding skilled workers with degrees in science, technology, engineering and math. Kip Eideberg, vice president for public affairs and advocacy at the Association of Equipment Manufacturers, said the proposed elimination of tax credits for graduate students could have a "chilling effect on the future manufacturing workforce."
"Making it harder or less affordable for people to pursue those degrees is not a good thing at all," he said.
In addition, small- and medium-size manufacturers may not get as much tax relief as larger corporations, according to the National Association of Manufacturers. "Permanent, real and strong relief for small businesses is going to be an imperative in the final bill," said Jay Timmons, the association's chief executive.
Caterpillar Inc. is among U.S. multinationals hoping for lower taxes on foreign profits and repatriated cash. Amy Campbell, director of investor relations, has suggested such changes would free up funding for the company's U.S. operations "About 90% of our cash right now is overseas," she said at a Nov. 15 conference.
AIRPORTS AND AIRLINES
A provision in the House bill would end the practice of local governments selling tax-exempt "private activity bonds" that airports use to finance new or rebuilt terminals, parking garages and other infrastructure.
Airports estimate they have $100 billion in infrastructure needs in the next five years. Without the tax break, they say they would have to sell costlier taxable bonds. Two trade groups are lobbying to retain the bonds, which also are used to fund ports, hospitals and universities.
Airlines are equally unhappy about the potential repeal of those bonds, as well as provisions in the tax bills that would limit corporate interest deductions. But the promised corporate tax rate cut would more than make up the effect of smaller changes airlines dislike, according to their leading trade group.
If the tax cut doesn't generate increased revenue through higher economic growth, as Republicans envision, a rising federal budget deficit could lead to military spending cuts in the early 2020s that would hurt defense contractors.
While the Pentagon investment budget is now growing at 3%-4% a year, the administration hasn't flagged medium-term growth trends. "As it did in the 1980s, that could signal a peak in DoD spending prospects, even in a world that is dangerous," said Byron Callan, at Capital Alpha Partners LLC.
Defense executives say they may prepay some pension obligations to secure tax benefits of writing off that cost at the current 35% rate.
Most restaurant companies have been battling increased labor costs and flat or falling customer traffic, making a lower tax rate more welcome than ever.
"We believe that a simplified tax code for businesses and individuals will lead to more economic growth for the country," said Dunkin Brands Group Inc. Chief Executive Nigel Travis.
Stephens Inc., a financial-services firm, said companies that own most of their restaurants rather than franchise them would especially benefit from the proposed legislation because they could write off the cost of building new outlets.
Independent supermarket owners are pushing for Congress to adopt the same lower corporate tax rate for pass-through businesses that will be given to big corporations under current proposal.
The National Grocers Association, the trade association representing independent supermarkets, wrote to Senators on Tuesday urging them to "create a more level playing field for Main Street supermarkets." As it stands, the tax bill could accelerate consolidation already under way in the grocery industry, they said.
Many farm groups are pleased the proposed legislation includes tax deductions for large capital purchases and other provisions that help farmers reduce large swings in their tax burdens resulting from variations in markets and weather.
But the National Farmers Union, which advocates for small farmers, is worried about plans in the Senate version of the bill to repeal the Affordable Care Act's health-insurance mandate. Roger Johnson, the group's president, said farming is among the most dangerous occupations in the country and that many farmers rely heavily on access to medical care and would be hurt by higher premium costs expected to result from the bill.
Agricultural cooperatives want to protect deductions related to co-op costs, which farmers use to reduce their own tax obligations. Discarding that deduction -- which both the versions of the legislation would do -- would hurt farmers amid a multiyear slump in crop prices, said Chuck Conner, chief executive of the National Council of Farmer Cooperatives. "The timing of this couldn't be worse," he said.
--Jesse Newman and Jacob Bunge
Major cruise operators are looking at the possibility of paying more to the U.S. Treasury if the Senate version of new tax legislation becomes law.
Under current rules, Carnival Corp., Royal Caribbean Cruises Ltd. and Norwegian Cruise Line Holdings Ltd., have minimal U.S. taxable income on most of their operations. The companies are all based in Miami but incorporated in other counties. But the Senate proposal would create a new category of taxable income for foreign corporations with cruises originating from the U.S.
"The industry pays hundreds of millions of dollars in fees and taxes to U.S. ports and jurisdictions in which they operate -- even though a very small percentage of cruise line operations occur in U.S. waters," said Carnival spokesman Roger Frizzell.
Even if the Senate measure is adopted, cruise operators would only be subject to corporate tax for an average 12% of their total cruise days, which translates to an effective tax rate of 2%, or a combined $70 million a year, according to estimates by UBS.
Concerns that a lower U.S. corporate tax may undermine the competitiveness of Japanese companies and cause them to relocate to the U.S. have spurred some to suggest that Japan might follow America's lead.
"Japan should also do tax reform to be on an equal footing," Mitsui Fudosan Co. chairman Hiromichi Iwasa said in early November. His company, one of Japan's biggest real-estate firms, has been actively investing in the U.S. real-estate market. A spokesman said the company wasn't reconsidering its stance.
Toyota Motor Corp. expects a positive impact from a lower corporate tax rate but is also girding for a possible negative impact from any tax that may be levied on transactions between Toyota's headquarters in Japan and its American affiliate, a spokeswoman said.
"As a global company, we expect open trade and fair systems," she said. "We will carefully watch the process and try to deepen our understanding."
(END) Dow Jones Newswires
November 30, 2017 16:58 ET (21:58 GMT)Copyright (c) 2017 Dow Jones & Company, Inc.