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How the Senate’s Tax Bill Could Impact Semiconductors

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How the Senate’s Tax Bill Could Impact Semiconductors PART 1 OF 11

How the Senate’s Version of Tax Reform Differs from the House’s Version

Senate’s version of tax bill

US tax reform is now progressing quickly, and the technology industry (QQQ), of course, is monitoring the developments closely. At the end of September 2017, House Republicans released the framework for a proposed tax reform that highlighted lowering the maximum corporate tax from 35% to 20%.

How the Senate’s Version of Tax Reform Differs from the House&#8217;s Version

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On December 2, 2017, the Senate voted on its own tax bill, after making several last-minute amendments meant to address ballooning deficit concerns. According to the analysis by the Congressional Joint Committee on Taxation, economic growth coming from the tax bill will not be sufficient to bear the cost of the tax bill. The Congressional Budget Office estimated that the bill will likely increase the budget deficit by $1.4 trillion over the next ten years.

The Senate was thus under pressure to reduce the costs of the bill by 33% through several amendments. The amendments didn’t change the 20% corporate tax rate, but they did delay the effective date of the new tax rate to 2019. The Senate version of the bill received a 51-to-49 vote, with only one Republican, Tennessee Senator Bob Corker, voting against the bill due to deficit concerns.

Before the bill is passed, however, it may undergo even more changes as Senate and House leaders reconcile their versions.

Trump could make things complex

A few hours after the bill was passed by the Senate on Saturday, December 2, President Trump stated that he might consider increasing the corporate tax rate to 21% or 22%, adding to the complexity of the bill. There’s a high probability that Trump’s proposal to increase corporate tax would receive a strong objection from both Senate and House Republicans.

Tech stocks react to tax bill progress

Meanwhile, tech stocks have already started to react to the tax bill changes. All 15 stocks listed on the S&P 500 Semiconductor Index fell between November 28 and December 1, 2017, when the discussion of the Senate’s tax bill version was still ripe. Specifically, Micron Technology (MU), Lam Research (LRCX), and Applied Materials (AMAT) saw their stocks fall 12.4%, 11.9%, and 9.5%, respectively.

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