Making the Most of Corporate Tax Reform
Although nothing major has happened yet, rest assured that corporate tax reform is on the way. The Trump administration has made big promises and at some point they are coming. So far, the president has proposed reducing the corporate tax rate from 35 percent to 15 percent, while republican leaders in Congress have proposed a slightly more modest reduction to 20 percent.
Either way, the cut would represent a significant reduction form the current rate of 35 percent and corporations would see a huge boost. For example, if the effective tax rate dropped to 8.4 percent, then S&P companies would see the amount of pretax income they keep jump to about 85 percent from the current amount of about 76 percent.
The president has also proposed a repatriation rate of only 10 percent. In other words all the corporate income that companies are currently holding overseas in order to avoid the 35 percent U.S. corporate tax rate would only be charged a 10 percent rate if it were brought home to the U.S. There could also be a removal of the interest-deductibility, which could actually hurt earnings, but the tax breaks would far outweigh the losses.
Therefore, if you add it all up you get a lower corporate tax rate that would boost earnings by about 11 percent combined with a repatriation rate that would boost earnings another 2 percent. Removing the interest-deductibility would lower earnings by 2 percent, therefore leaving a net boost of 11 percent to S&P 500 earnings.
Why Structure Is the Enemy of Innovation | Richard Dasher
About Richard Dasher Richard Dasher has been Director of the US-Asia Technology Management Center since 1994 and served concurrently as Executive Director of the Center for Integrated Systems since 1998. He holds Consulting Professor appointments in Electrical Engineering (technology management), Asian Languages (Japanese business), and at the GSB (with the Stanford Program on Regions…
Inspiring a Sustainable Future Through Storytelling | Rita Whitney
About Rita Whitney Rita joined the Board in June 2010 and serves on the Mission Fulfillment Committee. She is CEO of Ravivant LLC, a Board member of United States Fencing Association (Central California Division) and Executive Director of the Stanford Fencing Association. Having grown up in New York City, Rita observed many situations where…
What Venture Capitalists Want | Wally Hawley
About Wally Hawley Wally Hawley is a co-founder of InterWest Partners (1979), one of the larger venture capital partnerships in the United States, formed to make equity investments in diversified U.S. growth companies. His prior experience includes seven years as President of SHV North America Holding Corp., a wholly owned subsidiary of a Netherlands…