Paul L. Caron

Sunday, January 28, 2018

WSJ: The New Tax Law Is Roaring Through U.S. Companies

Wall Street Journal, The Tax Law, Just One Month Old, Is Roaring Through U.S. Companies:

Just weeks after the federal government adopted the biggest tax overhaul in three decades, the effects are rippling through corner offices and boardrooms, with companies large and small dusting off once-shelved plans, re-evaluating existing projects and exploring new investment in factories and equipment. ...


The rapid adaptation goes well beyond the early announcements of $1,000 bonuses or minimum-wage increases for rank-and-file workers. And this is just the beginning. The U.S. Treasury and the Internal Revenue Service have offered guidance on just a few of the two dozen provisions in the law that will likely require formal regulations. Companies must navigate complex rules imposing minimum taxes on foreign income, tax breaks for partnerships, faster deductions for capital spending and new limits on interest and operating-loss deductions. ...

“We’re only 30 days into the tax reform process,” Lowell McAdam, chief executive of Verizon Communications Inc., told investors on Tuesday. “We’re all trying to understand the implications and what we can accelerate and how we can accelerate.” ...

Some economists caution the economic impact may not quite measure up to the growth in profits. Oxford Economics, a forecasting and consulting firm, estimates the legislation will contribute 0.4 percentage points to already-robust economic growth in 2018, and another 0.1 to 0.2 points in 2019, said Gregory Daco, head of U.S. economics for the consultancy.

About half of that is likely to come from business spending, and the rest from households, Mr. Daco said. Oxford estimates that each $1 of corporate tax cut will lead to 40 cents of spending, based on historical precedent, Congressional Budget Office studies and conversations with corporate executives.

That’s mostly a one-time gain. A reduction in taxes frees up profits to spend, but that then becomes the new normal, with further growth coming from general economic expansion or other factors. ...

The tax overhaul is altering corporate operations in sometimes surprising ways. Netflix, for example, has changed the compensation it will pay three of its top officers, raising their salaries by a combined $19 million.

Its reasoning: The new tax law prevents companies from deducting any sort of pay over $1 million apiece for key executives. Prior law allowed companies to deduct that pay if it was tied to performance. So, having lost the benefit of a tax deduction for paying performance-based bonuses instead of salary, Netflix announced days after the tax law was passed that its board was scrapping the performance measures and converting the pay into straight salary instead, as it used to do before 2014.

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If this all comes about the stock market should continue on a upward trend for years..............

Posted by: Sid | Jan 28, 2018 10:38:38 PM