American Companies Counting Benefits from President Trump’s Tax Cuts
$WFC, $GS, $AAPL, $GOOGL
US Craft breweries are raising a glass to the Republicans’ new tax overhaul: It cuts the excise tax on beer.
US Retailers, long saddled with heavy tax bills, will get relief. So will some high-profile names in corporate finance, led by Wells Fargo (NYSE:WFC).
The tax measure that President Donald Trump signed into law last Friday distributes benefits across a range of American industries, from construction to healthcare.
“As a general rule of thumb, everybody’s doing well under this bill,” the chief economist at Tax Analysts, says of US companies. “When you give out a trillion in tax breaks, it’s hard to create a lot of losers.”
It is no wonder the stock market has been roaring in anticipation of fatter after-tax corporate profits.
The new law cut the corporate tax rate to 21% from 35%. It applies a low 1-time tax to the profits that corporations have long kept overseas to avoid paying taxes under the current higher rate.
Also, it delivers a windfall to people who pay personal taxes on business earnings.
It lets companies immediately write off the full cost of new equipment, and it showers benefits on some individual industries, such as craft brewers, distilleries and wineries.
The reasoning behind shrinking the tax burdens of corporations is to free up money for companies to invest in buildings, equipment and people and thereby juice the economy, and, in turn, benefit workers.
In USDs, the biggest tax savings from Y 2018 through Y 2027 go to manufacturers: $261.5-B.
Next-most-fortunate are insurance and finance companies ($249.4-B) and retailers ($171.4-B).
Supporters of The Trump Tax Bill point out that America’s 35% corporate tax is 1 of the highest among advanced economies.
But, because of the tax code’s loopholes few corporations actually paid that price.
Without the new law, the effective tax rate across all industries would have been 21.2% next year. With it, the effective rate across industries drops all the way to 9.2% in Y 2018, according to Penn Wharton’s Model.
Not all industries gained equally from loopholes.
Retailers, for example, would have paid a 27.5% rate in Y 2018; under the new law, they will pay 15.6%.
Mr. Shay says he thinks the bill will help retailers accelerate investment in e-Commerce and mobile technology. He also predicts that the bill will induce foreign-owned retailers to shift investment dollars into the United States.
Finance and insurance companies would have paid an effective corporate tax rate of 26.1% next year. Now, it will be 14.3%.
Analysts at Goldman Sachs (NYSE:GS) have estimated that the tax law will boost big-bank earnings per share by 13% next year.
The top beneficiary will be Wells Fargo, which has been dogged by scandals over cheating customers. It will enjoy an 18% earnings surge in Y 2018, Goldman estimates.
Technology companies like Apple (NASDAQ:AAPL) and Google’s parent Alphabet Inc.(NASDAQ:GOOGL) can now catch a break on profits they’ve stored abroad.
Under current law, corporations must pay the US corporate tax on overseas earnings, but not until they return the money.
So tech companies have kept a big piles of cash profits overseas: $669-B worth at the end of last year, according to Moody’s Investors Service.
The tax overhaul imposes a discounted 1-time levy on those earnings; 15.5% for earnings held in cash or other liquid assets and 8% for earnings held in harder-to-sell assets.
That means tech companies can return the money the United States with less of a tax burden.
The tax bill let craft brewers cross something off their longstanding wish list: The federal excise tax (luxury) they pay will be halved to $3.50 a barrel on the 1st 60,000 barrels. Wineries and distillers also get tax breaks.
The tax plan also benefits owners of “pass-through” businesses, who pay personal income tax on business earnings: It lets them deduct 20% of the first $315,000 in earnings.
If there’s more money left over because American businesses pay less taxes, they can be a little more competitive and invest in new products.
But,as of now many are now familiar with the details of the tax changes.
We believe that that a significant percentage of any windfall will be invested in things that either increase sales or efficiencies in American busniness.