Republicans Look Close to Solving U.S. Tax Reform Puzzle

As we have long expected, Senate Republican leadership recently passed a “tax reform lite” plan that has the potential to bring about lasting changes to the U.S. corporate tax system. While we may modify certain tax reform-related assumptions incorporated into our models, we don’t anticipate a material change in our fair value estimates or economic moat ratings for firms with U.S. earnings exposure, due to various offsetting factors. We believe tax reform is more likely than not to occur and the product of the House and Senate’s reconciliation efforts in committee will directionally align with our previous assumptions. As a reminder, we had assumed the following in our models: 1) a 25% corporate tax rate beginning in 2018; 2) an election for firms to either fully expense their U.S. manufacturing capital expenditures when made or deduct net interest expense; 3) a deemed repatriation tax of 10% on overseas earnings held in cash; and 4) the elimination of certain special interest tax provisions.