Friday, September 20, 2019
Nicholas Cohen (MIT) & Manoj Viswanathan (UC-Hastings), Corporate Behavior and the Tax Cuts and Jobs Act:
The Tax Cuts and Jobs Act of 2017 fundamentally altered United States tax law. TCJA supporters believed that the tax benefits afforded U.S. corporations would incentivize corporations to use their additional after-tax cash in ways beneficial to the U.S. economy. Our study, the first of its kind, uses corporation-by-corporation data from recent public filings to measure how the change in effective corporate tax rate affects various corporate behaviors. We find that the TCJA’s reduction in effective tax rate has no relationship to several corporate actions, including hiring new employees and making capital expenditures, two behaviors predicted by TCJA proponents.
We do find, however, a small relationship between change in effective tax rate and both CEO compensation and total value of shares repurchased, two corporate behaviors anticipated by TCJA skeptics.