Tuesday, November 28, 2023
Edward Fox (Michigan; Google Scholar) presents Who Benefits from Corporate Tax Cuts?: Evidence from Banks and Credit Unions around the TCJA (with Benjamin Pyle (Boston University; Google Scholar)) at NYU today as part of its Tax Policy and Public Finance Colloquium hosted by Daniel Shaviro and at Columbia on Thursday as part of its Davis Polk & Wardwell Tax Policy Colloquium hosted by Michael Love::
The TCJA of 2017 made large changes to the taxation of corporate and pass-through businesses in the U.S. Understanding the effects of these changes is complicated by the difficulty of finding control firms whose taxation was not altered by the Act. We study the effect of the TCJA on small and medium size banks using credit unions—which compete with these banks for deposits and in making loans—as a novel control group. Credit unions were not taxed both before and after the Act. Using a difference-in-difference framework, we find that an important fraction of the incidence of the tax cut goes to depositors. We find little evidence that employees or borrowers from banks receive a share of the tax cut in the form of higher wages or lower interest rates on loans or that banks increase their investment in fixed assets as a result of the Act.
We analyze the effect of the TCJA on small and medium size banks using credit unions as controls. Using a difference in difference framework, we find consistent evidence that banks raised the (relative) amount they paid on deposits after the Act. This increase represents roughly 40% of the total tax savings enjoyed by banks. By contrast, we see little, if any, evidence of pass through of the tax cut to employees or customers who borrow from these banks or increase in investment in physical assets.