Overhaul Updates: BP Takes $1.5 Billion Tax Hit Now; Long-Term Corporate Gains Expected

by: The Knowledge Group

January 09, 2018


BP oil company will take a $1.5 billion tax hit  as a short-term adjustment to new U.S. tax rules. This one-time, non-cash charge of $1.5 billion on BP’s 2017 fourth quarter anticipates the new, lower corporate tax rate, and creates deferred tax assets. Along with Shell and other multinationals, BP anticipates long-term gains from the $1.5 trillion tax overhaul, which slashes the corporate rate from 35% to 21%.

As Congress was still hashing out the tax plan in December, Home Depot praised the plan for boosting the positions of corporations, enabling corporate leaders, in turn, to bolster the job market. Similarly, White House economists call the more corporate-friendly tax structure an investment incentive, positioned to bolster jobs and wages.

Yet Home Depot also expressed intentions to spend excess funds on paying down debt and increasing shareholder returns instead. And T-Mobile US revealed a $1.5 billion plan to buy back shares. This raises concerns that employees will take a back seat to shareholders and investment bankers when any extra moneys are available for spending.

Larry Summers, Treasury Secretary during the Clinton Administration, wrote a blog entry in October, slamming the Trump administration’s claims of expected links from corporate tax cuts to higher wages as lacking peer-reviewed support.

So, Is Anyone Hiring, Giving Raises, or Investing?

AT&T and CVS Health have both announced intentions to use tax savings for hiring or putting money into equipment. AT&T promises to increase investment in the year ahead from $22 to $23 billion.

On the other hand, leading companies in Standard & Poor’s 500 stock index have spent trillions buying their own shares in the past five years. These include Citigroup, Wells Fargo, and the Google parent company Alphabet, followed by Boeing, Apple, and JPMorgan Chase.

Provisions, in the new tax structure, for easing the repatriation of overseas accounts could exacerbate a parallel problem.

In 2004, U.S. corporations received an opportunity to repatriate money under a 5.25% tax rate instead of the standard 35%. The bulk of repatriated money was distributed to shareholders.