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Corporate Tax Rates

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The reduction in corporate tax rates will provide an earnings boost to corporations with net deferred tax liabilities (AT&T) and penalize corporations with net deferred tax assets (Citigroup).

When rates change, accounting rules mandate a company’s deferred tax assets and liabilities be adjusted to reflect the new rates at which those assets and liabilities will be “realized” or “settled.” The reduction of a liability increases earnings and boosts shareholders’ equity. The truncation of an asset, however, engenders a charge to earnings and diminution of shareholders’ equity. While most benefit, financial companies, which often have copious deferred tax assets, suffer.

Robert Willens, President, Robert Willens LLC

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