The Register Citizen (Torrington, CT)
Industries noting tax-law benefits
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 President Donald 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. Yet mainstream economists have expressed doubts workers will benefit much from corporations’ lower tax burdens.
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.
“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.
Shay says he thinks the bill will help retailers accelerate investment in ecommerce 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 percent next year. Now, it will be 14.3 percent.
Analysts at Goldman Sachs have estimated that the tax law will boost bigbank earnings per share by 13 percent next year. The top beneficiary will be Wells Fargo, which has been dogged by scandals over cheating customers. It will enjoy an 18 percent earnings surge in 2018, Goldman estimates.