Analysts: Tax bill has few losers
Boom in profits seen
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 tax measure that President Trump signed into law Friday distributes benefits across a range of American 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, said of U.S. companies. “When you give out a trillion in tax breaks, it’s hard to create a lot of losers.”
No wonder the stock market has been roaring in anticipation of fatter after-tax corporate profits. 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 immediately write off the full 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 — and, in turn, benefit workers.
In dollars, 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 most fortunate are insurance and finance companies ($249.4 billion) and retailers ($171.4 billion).
Supporters of the Republican tax bill 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 all the way 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 just 15.6 percent.
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 — $669 billion worth at the end of last year, according to Moody’s Investors Service.
The tax bill will let craft brewers cross something off their longstanding 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.
The tax plan also benefits owners of “pass-through” businesses, who pay personal income tax on business earnings: It lets them deduct 20 percent of the first $315,000 in earnings.