Passage of the tax overhaul by Congress has resulted in some major corporations deciding to share the wealth with employees. These include AT&T Inc. (NYSE:TC), Comcast Corp. (NASDAQ:CMCSAC), Wells Fargo & Co. (NYSE:WFCB), Fifth Third Bancorp (NASDAQ:FITBB) and Boeing Co. (NYSE:BAC).
In addition, 30 large companies have said they will attempt to boost stock prices through share buybacks. Others are expected to bump dividends to shareholders as a way of spreading out some of what they will save with lower tax rates, including a low repatriation tax on offshore funds.
Companies with most of their operations in the U.S. stand to gain the most although the afore-mentioned repatriation tax of 14.5% on liquid assets and 7.5% on illiquid assets could be very helpful to corporations with money parked overseas.
Although some analysts expect most of the windfall to go to CEOs and shareholders, many companies are attempting to get ahead of the curve by announcing payments and raises to employees. AT&T and Comcast said they would pay a $1,000 bonus to most U.S. workers once President Trump signs the legislation – expected to happen in early January. Wells Fargo and Fifth Third plan to raise their minimum wage to $15 per hour.
New Corporate Rate
All this comes mostly because the legislation reduces the corporate tax rate from 35% to 21%. This and other cuts made by the Republican led congress are all expected to result in a $1.5 trillion deficit over the next decade. Most Republicans believe the boost to the economy could more than pay for the cost of the legislation.
Since most corporations don’t pay the maximum corporate rate of 35%, the new law is expected to result in an even lower effective tax rate for many large companies. Recently the average effective rate paid by many corporations was 21.2%. While it isn’t known what the average effective rate will be under the new law, some analysts suggest it could be as low as 10% or even less.
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Effect On Investors
A tax law this massive is expected to have a significant impact on the investing class. First, of course, will be the new individual tax rates reducing the top rate from 39.6% to 37%. The $10,000 deduction cap on state and local taxes is also expected to have an impact on some investors.
Investment expenses are no longer deductible under the new plan and Roth recharacterizations will be a thing of the past beginning in 2018. There are some pluses, including a provision allowing the use of up to $10,000 of 529 plan funds for elementary and secondary education.
While capital gains taxes did not change, they are defined a little differently. Instead of applying to specific tax brackets, capital gains rates now apply to specific income thresholds. The 0% rate, for example, applies to those with income up to $38,600 for single filers and $77,200 for joint filers.