Technology Firms Will Gain Most From Temporary Tax Cut, Study Suggests

by Mike Godfrey, Tax-News.com, Washington

01 July 2004

A study conducted by investment bank Merrill Lynch has concluded that US technology firms stand to gain the most from a temporary tax cut on repatriated foreign income should the measure make it onto the statute book.

The research also suggested that six technology firms that did not turn in a profit during 2003 would have been profitable that year had the measures included in the House version of an international tax bill been in place.

One of the key aspects of that bill, known as the American Jobs Creation Act of 2004, is the proposal to reduce income tax on repatriated earnings to 5.25% for the period of one year to encourage firms to invest domestically.

Its central proposal is a 3% cut in corporate tax to negate the effect of repealing FSC-ETI subsidies.

The Merrill Lynch study predicted that the tax cut could have the added benefit of boosting share prices as investors reward firms for higher earnings, although the downside will come after the expiration of the one-year measure.

"Thus those companies that benefit from the tax windfall in 2004 will have to increase organic growth in 2005 to offset the lost tax windfall," the report forecast.

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