We all know the talking points underlying the corporate tax reform provisions in the recent tax legislation. We were told that corporations were taxed at a roughly 35 percent rate, that tax reform would reduce corporate tax liabilities, and that the reform would make billions available for new projects to boost the economy. Now that we are starting to see corporate earnings reports, we can test the talking points against the evidence. The data shows--
- GE’s earnings report contrasts sharply with the talking points. For 2016, GE had a negative 5% tax rate. (Don’t ask how). Following tax reform, it expects to pay taxes at a rate in the mid to high teens, with that rate increasing to 20%+ after 2020.
- IBM reported that its operating tax rate for 2017 was 12%. Following tax reform, it projects an operating tax rate of roughly 16%.
- Johnson & Johnson reported that its tax rate for 2017 was 17%. For 2018, it projects a tax rate of 16.5—18%.
Bottom line is that corporate America was not subject to a 30%+ tax rate before tax reform. More surprisingly, these major corporations expect that their tax rate will increase or change little after tax reform. Perhaps the incentives for repatriation of earnings held offshore will reduce effective rates, but the preliminary data suggests that reality is not as simple as the talking points behind tax reform.
