The largest tax reform in the United States in 30 years will have far-reaching effects when it is implemented next year. The revised tax law provides that the corporate income tax rate will be reduced from 35% to 21%, capital spending allowed to be fully deductible, and overseas profits repatriated to a lower tax rate.
The new tax law will most likely affect the following industries:
Real estate / home builder
A clause that Republicans firmly committed to in the final stages of amending the tax code will bring unexpected benefits to real-estate investors like President Donald Trump. This change allows real estate companies to apply for new tax breaks for partnerships, limited liability companies and other so-called pass-through businesses.
The new tax law reduced the ceiling of interest deductions allowed on new mortgage loans from the current $ 1 million to $ 750,000, which the House originally demanded to reduce to 500,000 U.S. dollars. Also, a $ 10,000 property tax and local income tax deductions have been retained, although this figure is far below the cost of many high-income families in California, New York State and New Jersey.
Technology companies will benefit from the repatriation of funds. according toGoldman SachsThe group estimates that U.S. businesses currently retain profits of up to 3.1 trillion U.S. dollars. Bloomberg summary data shows that most of them areappleThe company reached 252 billion U.S. dollars, accounting for 94% of its total cash.Microsoft,Cisco, Google parent Alphabet Inc. withOracleFollowed by.
However, the remittance clause may generate a large tax bill in the short term. According to data from Bloomberg Industry Research, for example, Apple's 14.5% tax rate is equivalent to a tax burden of 36.6 billion U.S. dollars, or about 7 U.S. dollars per share.
Asset Management Company
AnalystIt is estimated that most of the tax savings on the tax reform will be used to increase dividends and stock repurchases. This will push the US stock market higher and increase the investment value held by asset management companies.
Tax relief for individuals, especially the rich, will also bring more demand for asset management companies' wealth management services.
According to Goldman Sachs estimates, the new tax law on the average may improve the 2018 US big bank's profit of 13%. The biggest improvement will beFuGuo bank(17%) and PNC Financial Services Group Inc. (15%).
Morgan StanleySaid the overall tax reform would benefit U.S. banks by helping them compete with low-tax international rivals. Many of the provisions of the act, including the repatriation of overseas cash, could all stimulate mergers and acquisitions by US companies, thereby boosting the bank's investment banking operations. The bank's wealth management department may see moreCash flowBecause the law reduces the tax rate of the rich.
However, the reduction of interest expense deduction will affect the bank's profitability. This rule may also cause companies to reduce their loans. Morgan Stanley said this for Synovus Financial Corp., which has a large exposure to real estate and commercial loans, Banks and other banks may be more painful.
According to Morgan Stanley, Discover Financial Services, which focuses on consumersSynchrony FinancialThe impact on materials will be lower, because individuals can not deduct interest expenses, so their behavior will not have any change.
Private equity institutions
The fall in income tax rates means that businesses should have more cash to buy, potentially raising the value of private equity firms. In addition to the acquisition of assets will be more. Many conglomerates have been holding non-core assets because they do not want to incur significant tax burdens on sale.
But like a bank, private equity institutions will be negatively affected by a reduction in interest deductions. Financial companies use debt to finance acquisitions, which can disrupt their business models if the cost of borrowing is higher. It may also limit the size of the deal.
According to UBS, including the largest company in the industryGeneral MotorswithFord, Will benefit from the reduction of income tax rate and the reduction of tax burden on repatriation of overseas profits.
Large car dealers, such as AutoNation Inc. It can also benefit as they focus on the United States and pay high tax rates.
Consumer goods / retailers
Retailers will reap huge rewards from tax cuts, as many businesses pay for the vast majority, at least in large part, of their revenues from the United States and pay one of the highest tax rates in any industry.
Chain and consumer brands also expect tax reform to increase the demand for their goods and services. Many of these companies rely on sourcing by low- and middle-income consumers, and personal tax burdens (such as double the standard deduction) increase disposable income.
According to Jefferies LLC data, atMachinery Industry, The truck industry may get the most benefit. The cut in corporate tax rates will allow more carriers of all sizes in the country to use energy-efficient cars to upgrade their fleets. The new deduction of capital expenditure in the new tax law will prompt transport companies to buy another new motive. This is for truck manufacturer Paccar Inc. And Navistar International Corp. And so on is a potential gospel.
Jefferies also pointed out that forCaterpillarThis is not the case for such agriculture and its equipment suppliers. Current crop prices have also caused farmers to struggle on the breakeven line, which means that tax cuts for businesses have little effect on them. However, the situation will change if crop prices rise.
Jefferies notes that tax cuts may also spur industrial giants to spin off businesses that are not central to their current strategy. For aircraft suppliersBoeingwithGeneral ElectricFor the tax reform may also be a boon, because airlines also need to upgrade the fleet.
According to the Bloomberg study, oil and gas companies will be big winners as they pay the second highest effective tax rate in all industries, up to 37%. However, some oil prospectors and equipment suppliers will not benefit as they are still at a loss.
After lobbying, the renewable energy industry avoided a major blow in the tax reform as a $ 7,500 electric car subsidy and wind farm credit was retained. However, some people are worried that the new tax law on the adjustment of tax deductions may damage wind energy andSolar energyProject financing.
Hospital andInsurancethe company
Ana Gupte, an analyst with Leerink Partners, estimates that the new tax law will boost insurers' profits by up to 15% because of their higher income tax rates. But abolishing Obama's personal compulsory insurance will not help Medicare and hospitals. Ending this rule - requiring all Americans to get health insurance or facing a fine - may reduce the number of people who buy insurance. For hospitals, the increase in uninsured means a reduction in paying customers.
U.S. drug makers will be one of the biggest beneficiaries of the profit repatriation clauses in the tax reform. With billions of dollars in overseas profits, they can now bring home the cash at a lower tax rate. Although the new tax law has been touted by Republicans as a tool to create jobs, the reality is that pharmaceutical companies are more likely to return money to shareholders or use it to make acquisitions. Biotechnology and pharmaceutical companies to develop rare disease drugs will receive a smaller tax deduction. Under current law, they can deduct 50% of the trial cost for rare diseases that affect a minority of patients. The revised bill cuts this ratio to 25%, so will give the government an additional revenue of 32.5 billion U.S. dollars in the next ten years.
This is another industry that may increase capital investment because telecom companies often need to upgrade their networks. The new tax law allows such expenses to be immediately deducted, instead of being apportioned for several years. AT & T Inc. It has already said that under the new tax reform plan, it will invest 1 billion U.S. dollars more in U.S. infrastructure next year.
(Original title: Winners and losers inventory - 30 years of the largest tax reform on the impact of US companies)