A Trump tax reform package will not be passed by Congress this year, forecasts Morgan Stanley, a political development that would be bad news for technology companies such as Apple (AAPL) and Cisco Systems (CSCO) hoping for relief on foreign profits brought into the U.S.
Proposed changes on "repatriated" overseas cash are part of a bigger Trump tax reform package. The companies currently with the most overseas cash are Apple, Microsoft (MSFT), Cisco, Alphabet's (GOOGL) Google and Oracle (ORCL). Many Wall Street analysts have speculated that cash brought back into the U.S. could be used for stock buybacks or acquisitions.
"We still think there's a better than not chance that tax reform will happen before 2019," said Morgan Stanley strategist Michael Zezas in a report that outlines reasons why it will be delayed. Midterm 2018 elections could get in the way, Zezas said.
He says momentum for tax reform is unclear even if Senate Republicans dump ObamaCare.
"It is unclear whether the (health care) plan being developed by leader Mitch McConnell will pass the Senate, and if it does, if it will be acceptable to House Republicans," said Zezas. "If the bill passes, the journey is not over yet — either the House will have to accept the Senate bill as is or they will need to work out differences in conference committee."
House Speaker Paul Ryan aims to get tax reform passed in 2017, but Zezas says there are big obstacles.
"The main culprits? Lack of bipartisanship, the restrictions of the budget reconciliation process, and disagreements on key tax issues within the Republican party," he added.
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Cash-rich tech companies like Apple, Microsoft and Cisco currently would pay a 35% tax on so-called "repatriated earnings." Rather than take the tax hit, they've kept the money overseas.
President Trump has proposed a one-time tax of 10% on offshore earnings while the Republican-controlled House has proposed a lower 8.5% rate.
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