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Corporate AmericaSPTCJASPTCJATCJA’GILTIK&LspKPMGTCJAGDPYour browser does not support the element. has at least one big thing to celebrate about the presidential election: it has erased the possibility of a rise in the country’s corporate-tax rate, as had been proposed by Democrats. Weighed against the cost of tariffs—and more abstract concerns about the health of America’s institutions—the promise of lower taxes and deregulation warmed bosses to Donald Trump during the campaign. Shareholders, who stand to benefit directly, rejoiced at Mr Trump’s victory, sending the & 500 index of American stocks to a record high.Muscle memory is partly responsible. The crowning legislative achievement of Mr Trump’s first term was the Tax Cuts and Jobs Act () of 2017, which lowered America’s federal corporate-tax rate from 35% to 21% (see chart). Profits surged. Share buybacks by & 500 firms leaped from $540bn in 2017 to $840bn in 2018. Other consequences became clearer with the spilling of academic ink. One recent study finds that the act caused corporate-tax revenue to fall by two-fifths. Investment increased by a more modest 8-14%, depending on how it is measured. “All of the responses we observe in terms of capital accumulation are pretty small relative to the direct budgetary costs,” says Eric Zwick of the University of Chicago, one of the paper’s authors.During his campaign Mr Trump promised another tax bonanza—albeit in vague terms. Earlier this year he floated a plan to cut the corporate-tax rate to 20%. Most pundits think his preferred rate would be 15%, as it was in 2016. Indeed, in a speech in September he promised to cutting the rate to that level, though only for companies that manufacture domestically. “You have to make your product in America,” Mr Trump repeated to the applauding audience of businessmen, who seemed not to clock how onerous the condition would be.Mr Trump has also promised to extend the ’s tax cuts for individuals, which expire at the end of next year. That is of more than just personal interest to executives, for whom any sign of a hit to consumer spending is bad news.Company bosses are hopeful that Mr Trump will fiddle with the tax code in other favourable ways as well. Though the s corporate-rate cut was permanent, some of its rules for firms become less generous over time. One is the global intangible low-taxed income rate—a tax on American firms’ foreign profits better known by its sly acronym, —which is set to rise from at least 10.5% to 13.1% in 2026 unless Mr Trump intervenes. In September the president-elect said he would make some capital expenditures immediately tax-deductible and expand tax credits for research and development. More controversially, firms are hoping he reverses changes to the treatment of interest payments—since 2022, companies have been allowed to deduct up to 30% of earnings only after, rather than before, depreciation and amortisation. Pursuing that measure would be the first sign of a corporate “money grab”, argues William Gale of the Brookings Institution, a think-tank.Every tax bill has its losers. Those most likely to suffer this time are firms in green industries that benefited from tax breaks under Joe Biden’s Inflation Reduction Act. Existing industrial policies will, at the very least, acquire a more hawkish bent. Mary Baker of Gates, a law firm, says there is appetite for tighter rules on the granting of tax credits that might benefit “foreign entities of concern”.Nevertheless, a maximalist interpretation of Mr Trump’s various campaign promises implies a big boost to corporate America’s profits. Each percentage-point decrease in the statutory rate lifts & 500 earnings by nearly 1%, reckon analysts at Goldman Sachs, an investment bank. The benefit would be biggest for firms earning and recognising a high proportion of their profits domestically, such as banks and retailers. Tweaking allowances on interest deduction, meanwhile, would be especially profitable for the sort of highly levered, capital-intensive firms favoured by private equity. Companies will also be weighing up the implications of Mr Trump’s more eccentric personal-tax proposals, such as making interest on car loans tax-deductible and exempting tips from taxes.Yet as lobbyists limber up to influence the blockbuster tax bill that is likely to dominate Mr Trump’s first year in office, some think that Wall Street has become too hopeful about his intentions and his ability to execute them. “Investors overall think there’s going to be another tax cut, and I don’t think that’s going to be proved correct,” says Andy Laperriere of Piper Sandler, an investment bank.If there is a cut at all, many in Washington now view the best-case scenario as a reduction in the corporate rate to 15% only for companies that produce at home. “It has a certain coherence with the tariff proposals,” says John Gimigliano of , an accounting firm. Determining which firms would qualify, though, is a vexed question. According to Kyle Pomerleau of the American Enterprise Institute, another think-tank, the difficulty of drawing a line between manufacturing and other income was one of the reasons why lawmakers got rid of a similar rule when the was passed. “McDonald’s was getting a deduction for manufacturing hamburgers. It’s not something you can target at a specific activity,” he says.It is America’s budget deficit, though, that is the elephant in the room. The Congressional Budget Office, a non-partisan scorekeeper, expects the country’s debt-to- ratio to hit an all-time high later this decade, a worry reflected in the rising yield on America’s government bonds. Mr Trump must navigate this with only a narrow majority in the House, where tax legislation must originate.By comparison, corporate America’s finances are in rude health. And as profits have continued to rise, the reputation of big business has sunk. Daniel Bunn of the Tax Foundation, one more think-tank, expects some Republicans in the House to be wary of handing tax cuts to firms. “These folks are sceptical of large corporates because of their size, their influence, their preferences on social policies and things of that nature,” he says. Bosses have been excited by the carrot of tax breaks more than they have been frightened by the stick of tariffs. It is possible, though, that the carrot will be much smaller than they hoped for.
