Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

Investors Should Monitor Tax Reform Developments

Author: Scarinci Hollenbeck, LLC

Date: February 23, 2015

Key Contacts

Back

Investors can benefit significantly from staying up to date on corporate tax reform developments, as existing policy may have a substantial impact on the stocks of different companies, financial expert Scott Cooley wrote in a recent Morningstar article.

This point could be particularly helpful, as discussions involving corporate income tax reform have generated visibility in Congress.

Reform and investing

Cooley, who is the director of policy research for Morningstar, emphasized that if the federal government ends up approving any proposed changes to the corporate tax structure, this development could easily have a major effect on the financial state of companies.

While lawmakers may encounter challenges reaching a consensus on many different issues, the push for corporate tax reform has generated bipartisan support, he noted. Should lawmakers succeed in their efforts to change policy, the broader asset markets will respond far in advance of the approved legislation being enacted.

Obama tax proposal

With this in mind, market participants might benefit from perusing any progress that is made on Pres. Barack Obama’s proposal to tax foreign earnings. In his State of the Union Address, Obama suggested providing a one-time, 14 percent levy on these profits held overseas.

Under current tax law, these companies only need to pay a tax if they opt to bring these financial resources back to the U.S. Given this setup, many firms simply keep their earnings in foreign countries instead of repatriating them back to the world’s largest economy, where they could face a tax rate of up to 35 percent.

As part of this broader plan, Obama would reduce the top corporate tax rate for profits generated in the U.S. to 28 percent.

Complicated policy

While the current tax rate may seem high, Cooley points out that the effective tax rate is significantly lower. Since U.S. companies face such high corporate income taxes – which can reach 40 percent of income after state taxes are included – these firms have responded by lobbying for different tax breaks that reduce their effective rates.

Many of these efforts have succeeded, and as a result, the framework of tax breaks and subsidies has grown very complex, he emphasized. In addition, the situation has left the U.S. with one of the biggest differences between actual corporate taxes brought in and the stated rate. Because of this lopsided situation, companies have even greater motivation to hire lobbyists to advocate for special tax breaks.

Given the intricate nature of this situation, many have advocated creating a simpler tax code. For example, lawmakers could make the current foreign earnings more straightforward by using a “territorial” system, which involves individual nations only taxing companies for the income generated within their borders, according to FoxNews.com.

Simpler approaches

Currently, this approach has garnered the support of both republican lawmakers and most companies, the media outlet reported. However, Cooley emphasizes that implementing more simplistic tax policies can be challenging.

For example, changing the complex system of U.S. corporate tax breaks could have major implications for these firms, he noted. While Wal-Mart generates most of its revenue domestically and harnesses a small number of actions that generate tax advantages, Johnson & Johnson creates a strong portion of its revenue in overseas countries.

While investors might currently look at the cash flow and price-to-earnings ratios of these companies when determining what to buy, they should keep in mind that these hard numbers may depend on a system of complex tax policies that could soon change.

Even though it is impossible to predict what direction tax reform will take, Cooley wagers that lawmakers will put some effort into changing existing policies in the next few years.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
IP Infringement: What Steps Can You Take If You're Affected? post image

IP Infringement: What Steps Can You Take If You're Affected?

IP infringement occurs when someone uses your intellectual property without your permission or beyond the scope of the permission you granted. Common examples of IP infringement include copying a product’s patented features or using a trademarked logo in a way that is likely to confuse consumers about the source or affiliation of goods or services. […]

Author: Michael Mietlicki

Link to post with title - "IP Infringement: What Steps Can You Take If You're Affected?"
Public Allegations, Unfinished Investigation: What New Jersey Businesses Should Do Next post image

Public Allegations, Unfinished Investigation: What New Jersey Businesses Should Do Next

When facing public allegations of wrongdoing, companies should not let the speed of the public conversation dictate the speed of an investigation. An investigation designed to confirm a preferred narrative rather than establish the facts can create serious problems later, particularly if litigation, regulatory scrutiny, or employment claims follow. Key Takeaways When public allegations surface […]

Author: Sean M. Pena

Link to post with title - "Public Allegations, Unfinished Investigation: What New Jersey Businesses Should Do Next"
BESS Interconnection: Managing Grid, Cost, and Schedule Risk post image

BESS Interconnection: Managing Grid, Cost, and Schedule Risk

For battery energy storage system (BESS) developers, securing equipment and site control is only part of the development equation. A project must also connect to the electric grid, and increasingly, BESS interconnection is one of the biggest sources of schedule, cost, and contractual risk. Key Takeaways This article is Part 3 of our Battery Storage […]

Author: Nicholas Wall

Link to post with title - "BESS Interconnection: Managing Grid, Cost, and Schedule Risk"
Navigating Director and Officer Liability in Times of Financial Distress post image

Navigating Director and Officer Liability in Times of Financial Distress

Director and officer liability increases sharply when a company is in financial distress. Decisions that would draw little attention in a healthy business can later be challenged by creditors, shareholders, bankruptcy trustees, and regulators as breaches of fiduciary duty, fraudulent transfers, or oversight failures. Understanding where that exposure comes from, and how to manage it, […]

Author: Michael Mietlicki

Link to post with title - "Navigating Director and Officer Liability in Times of Financial Distress"
Before You Buy: Managing Real Estate and Permitting Risk for BESS Projects in New York and New Jersey post image

Before You Buy: Managing Real Estate and Permitting Risk for BESS Projects in New York and New Jersey

For developers pursuing battery energy storage system (BESS) projects, finding the right property is only the beginning. BESS site selection is as much a legal and transactional exercise as a real estate decision, with risk analysis central to the project’s ultimate success. Key Takeaways The core questions for BESS site selection in New York and […]

Author: Nicholas Wall

Link to post with title - "Before You Buy: Managing Real Estate and Permitting Risk for BESS Projects in New York and New Jersey"
What Business Owners Get Wrong Before Meeting a Litigation Attorney post image

What Business Owners Get Wrong Before Meeting a Litigation Attorney

What should you expect when meeting a litigation attorney about a business dispute? You should expect to describe the dispute in your own words, hand over the most important documents, flag any deadlines or immediate threats, and leave with a clearer picture of the problem, what information is still needed, and the likely next steps. […]

Author: Michael Mietlicki

Link to post with title - "What Business Owners Get Wrong Before Meeting a Litigation Attorney"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form. By providing a telephone number and submitting this form you are consenting to be contacted by SMS text message. Message & data rates may apply. Message frequency may vary. You can reply STOP to opt-out of further messaging.
“If you would like to submit a file, please email it directly to info@sh-law.com.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!