The Republican Party passed sweeping tax reform last week, which is largely expected to boost the U.S. economy through several business-friendly initiatives, but one prominent senator thinks the bill may go a little too far in helping America’s biggest corporations.
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In an interview released on Friday, Sen. Marco Rubio (R-Fla.) said that while the new legislation is “significantly better” than the current tax code, he would have ideally like to have seen some provisions handled differently, particularly concerning incentives for America’s corporate giants.
“If I were king for a day, this tax bill would have looked different. I thought we probably went too far on (helping) corporations. By and large, you’re going to see a lot of these multinationals buy back shares to drive up the price. Some of them will be forced, because they’re sitting on historic levels of cash, to pay out dividends to shareholders. That isn’t going to create dramatic economic growth,” Rubio told reporters.
Among the changes in the bill that will affect large U.S. corporations is a dramatic reduction in the corporate tax rate, to 21% from the current 35%. The new legislation also switches the U.S. to a territorial system of taxation, from a worldwide one, which affects how foreign subsidiaries and assets are taxed internationally, and allows businesses to immediately expense new capital investments.
The hope is that corporations will repatriate some of the trillions of dollars they have held offshore and invest that money domestically. However, as Rubio pointed out, some companies could use the extra cash for share buybacks instead of other types of investments, which would have a lesser impact on economic growth.
During an interview with FOX Business earlier this month, former Pepsi president and Apple CEO John Sculley voiced similar concerns, saying that while there is reason to believe companies would bring money back onshore, “the real question is what these big companies will do with this capital. Will they in fact invest … or will they buy back stock?”
Still, a handful of companies, including AT&T (NYSE:T) and Boeing (NYSE:BA), have already committed to launching new initiatives to benefit employees.