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
How Intellectual Property Valuation Will Impact Business Transactions post image

How Intellectual Property Valuation Will Impact Business Transactions

Intellectual property valuation determines the monetary value of a business’s IP assets, and it drives outcomes in licensing deals, joint ventures, mergers and acquisitions, financing, and ownership disputes. The most valuable assets of a business are often the things that cannot be seen or touched: a proprietary process, a copyrighted work, brand recognition, or the […]

Author: Jay McDaniel

Link to post with title - "How Intellectual Property Valuation Will Impact Business Transactions"
Data Center, Dark Fiber, and Lit Services Agreements in New Jersey: Key Terms and Legal Pitfalls post image

Data Center, Dark Fiber, and Lit Services Agreements in New Jersey: Key Terms and Legal Pitfalls

For New Jersey data center owners and operators, a service agreement may look routine when it is signed. The network is functioning, the vendor is meeting its installation schedule, and the parties have agreed on pricing and performance specifications. The provisions that seem most important at that stage are often the technical ones. That changes […]

Author: George McGowan

Link to post with title - "Data Center, Dark Fiber, and Lit Services Agreements in New Jersey: Key Terms and Legal Pitfalls"
Fort Monmouth Redevelopment and the Transformation of Monmouth County Real Estate post image

Fort Monmouth Redevelopment and the Transformation of Monmouth County Real Estate

The Fort Monmouth redevelopment has entered its execution phase, and it is repositioning the broader Monmouth County real estate market. When Netflix and the Fort Monmouth Economic Revitalization Authority closed on the 292-acre Mega Parcel in December 2025, the transaction did more than hand over a deed. It marked the moment Fort Monmouth stopped being […]

Author: Donald M. Pepe

Link to post with title - "Fort Monmouth Redevelopment and the Transformation of Monmouth County Real Estate"
Local Zoning and Land Use Rules Every New Jersey Rental Property Owner Should Understand post image

Local Zoning and Land Use Rules Every New Jersey Rental Property Owner Should Understand

Owning a residential rental property in New Jersey involves more than finding tenants and collecting rent. Property owners must comply with a combination of state laws, municipal ordinances, building and housing codes, and zoning and land use regulations. These requirements can affect everything from the number of dwelling units permitted at a property to whether […]

Author: Donald M. Pepe

Link to post with title - "Local Zoning and Land Use Rules Every New Jersey Rental Property Owner Should Understand"
Real Estate Litigation Explained: Top 5 Disputes and How to Avoid Them post image

Real Estate Litigation Explained: Top 5 Disputes and How to Avoid Them

The five most common real estate disputes are breach of contract claims, landlord-tenant conflicts, zoning and land use disagreements, construction claims, and boundary disputes. Understanding why each arises, and taking preventive steps early, can help property owners, tenants, developers, and investors avoid costly litigation. Key Takeaways: Real estate transactions are complex endeavors involving numerous parties […]

Author: Paul Grossman

Link to post with title - "Real Estate Litigation Explained: Top 5 Disputes and How to Avoid Them"
When a Child Turns 18: The Gap in Your Family’s Estate Plan post image

When a Child Turns 18: The Gap in Your Family’s Estate Plan

Once a child turns 18, parents lose the automatic legal authority to make medical and financial decisions on their behalf, even if the child still lives at home or remains on the family’s insurance. Three documents close that gap: a durable power of attorney, a health care proxy or directive, and a HIPAA authorization. For […]

Author: George McGowan

Link to post with title - "When a Child Turns 18: The Gap in Your Family’s Estate Plan"

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!