Sun Sentinel Palm Beach Edition
Tax law brews up gains for U.S. industries
WASHINGTON — Craft breweries are raising a glass to the Republicans’ new tax overhaul: It cuts the excise tax on beer. Retailers, long saddled with heavy tax bills, will get relief. So will some high-profile names in corporate finance, led by Wells Fargo.
The bill that President Donald Trump signed into law last month distributes benefits across a range of U.S. industries, from construction to health care.
“As a general rule of thumb, everybody’s doing well under this bill,” Martin Sullivan, chief economist at Tax Analysts, says of U.S. companies. “When you give out a trillion in tax breaks, it’s hard to create a lot of losers.”
The new law slashes the corporate tax rate to 21 percent from 35 percent. It applies a low one-time tax to the profits that corporations have long kept overseas to avoid paying taxes under the current higher rate.
It also delivers a windfall to people who pay personal taxes on business earnings. It lets companies write off the cost of new equipment. And it showers goodies 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. Yet economists have expressed doubts that workers will benefit much from corporations’ lower tax burdens.
The biggest tax savings from 2018 through 2027 go to manufacturers: $261.5 billion, according to an analysis by the University of Pennsylvania’s Penn Wharton Budget Model. Next-mostfortunate are insurance and finance companies ($249.4 billion) and retailers ($171.4 billion).
Supporters of the GOP tax law point out that America’s 35 percent corporate tax is one of the highest among advanced economies. But the tax code is so riddled with loopholes that few corporations have actually paid that list price. Without the new law, the effective tax rate across all industries would have been 21.2 percent next year. With it, the effective rate across industries drops to 9.2 percent in 2018, according to the Penn Wharton Model.
Not all industries have gained equally from loopholes.
Retailers, for example, would have paid a 27.5 percent rate in 2018; under the new law, they’ll pay 15.6 percent. “The tax bill is a big shot in the arm for retailers, who have traditionally paid taxes at nearly the full amount,” says Matthew Shay, CEO of the National Retail Federation.
Finance and insurance companies would have paid an effective corporate tax rate of 26.1 percent next year. Now, it will be 14.3 percent. Analysts at Goldman Sachs have estimated that the tax law will boost big-bank earnings per share by 13 percent next year. The top beneficiary will be Wells Fargo, which will enjoy an 18 percent earnings surge in 2018, Goldman estimates.
Technology companies like Apple and Google’s parent Alphabet Inc. can now catch a break on profits they’ve stored abroad. Under current law, corporations must pay the U.S. corporate tax on overseas earnings, but not until they return the money. So tech companies have kept a big chunk of profits overseas — $669 billion worth at the end of last year, according to Moody’s Investors Service.
The tax overhaul imposes a discounted one-time levy on those earnings — 15.5 percent for earnings held in cash or other liquid assets and 8 percent for earnings held in harder-to-sell assets.
The tax law let craft brewers cross something off their wish list: The federal excise tax they pay will be halved to $3.50 a barrel on the first 60,000 barrels. Wineries and distillers also get tax breaks.
At COOP Ale Works in Oklahoma City, founder Daniel Mercer forecasts a tax windfall of about $60,000 next year. The 8-year-old brewery was planning to invest $2 million in equipment. The tax savings will contribute to that project and also “helps with building tap rooms, and tap rooms are a really high-margin source of revenue,” Mercer says.