Daily Management Review

While Jobs Are Less Certain To Follow, Companies Cheer Trump Tax Cuts


04/27/2017




While Jobs Are Less Certain To Follow, Companies Cheer Trump Tax Cuts
While it was unclear whether they would stimulate a surge in investment and job creation in return, the general agreement was that U.S. businesses would reap a windfall if President Donald Trump's plan to cut corporate tax rates and slash taxes on cash parked overseas becomes law.
 
From being the most highly taxed among the Group of 20 countries to being among the lowest would be possible for the companies in United States under Trump's proposals. Neighbors Mexico and Canada, which Trump has accused of shortchanging the United States in trade deals, would have higher rates of tax if tax rates were to fall in the US.
 
While allowing that the initial one-page plan left out crucial details, the administration's tax proposals were cheered by corporate leaders and business lobbying groups such as the U.S. Chamber of Commerce.
 
The tax plan does not detail cuts in spending that would help keep the budget deficit under control while including a cut in taxes on public companies to 15 percent from 35 percent.
 
While cautioning that "the practical reality of getting to 15 percent is you have to get yourself reconciled to some level of deficits for a period of time as you get the economic stimulation", AT&T Corp Chief Executive Randall Stephenson welcomed the tax plan.
 
According to Moody's Investors Service, big U.S. companies have nearly $1.8 trillion in cash stockpiled overseas. More than $200 billion of that total is owned by technology powerhouse Apple Inc.
 
While Apple Chief Executive Officer Tim Cook has said that the company was looking to bring back offshore cash if tax rates for doing so were lower, it did not immediately respond to a request for comment.
 
"What we would do with it, let's wait and see exactly what it is, but as I've said before we are always looking at acquisitions," Cook told investors on the company's first-quarter earnings call in January in response to an analyst's question about the company's thinking on acquisitions.
 
While White House and congressional Republicans, who have said business tax cuts would result in more and better jobs, Cook's comment points to a big unknown for them.
 
Instead of funding investments in production capacity or jobs, most of the offshore cash brought home by U.S. companies was used to buy back shares or make acquisitions, found studies of the results of past tax holidays.
 
Listed companies have set high targets for return on invested capital under pressure from shareholders.  For example, it is aiming for 20 percent returns on its capital investments, General Motors Co has told investors.
 
Following the last recession, which left them wary of becoming overextended, many U.S. companies have been tightfisted about investing in new plants and equipment. According to government data, investment in new equipment has flatlined since 2014.
 
There would be variations according to company and business sector in the financial impact of the White House tax plan. For example, for auto dealers, which are often family-controlled enterprises, a proposal to cut inheritance taxes is of high interest.
 
Less than the headline 35 percent tax rate is already paid by many companies. Standard and Poors said that an average tax rate of 29.06 percent for 2016 was paid by companies in the S&P 500 index.
 
A big difference is possible to be made by a change of a few percentage points in tax rates. Partly because of a 4 percentage-point drop in its tax rate, aircraft maker Boeing Co on Wednesday reported a 19 percent increase in first quarter profits.
 
"At the highest level we're a big supporter of tax reform," Boeing Chief Financial Officer Greg Smith told analysts and journalists on a call Wednesday. "It's going to drive jobs, it's going to drive the U.S. economy broadly speaking and it's going to allow us to compete."
 
(Source:www.reuters.com) 






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