The effect of US tax reform on the taxation of US firms' domestic and foreign earnings

Author:

Dyreng Scott D.1ORCID,Gaertner Fabio B.2ORCID,Hoopes Jeffrey L.3ORCID,Vernon Mary E.4ORCID

Affiliation:

1. The Fuqua School of Business, Duke University Durham North Carolina USA

2. University of Wisconsin–Madison Madison Wisconsin USA

3. University of North Carolina at Chapel Hill Chapel Hill North Carolina USA

4. University of Illinois Chicago Chicago Illinois USA

Abstract

AbstractWe quantify the immediate net effect of the Tax Cuts and Jobs Act (TCJA) on the tax burden of corporate profits for public US corporations. We find similar reductions in effective tax rates for domestic and multinational firms, yet the entirety of multinational tax savings stemmed from tax savings on their domestic, not foreign, earnings. We find no significant change in the federal tax burden on foreign earnings neither on average norspecifically for firms most likely to be subject to new anti‐abuse provisions. We find some evidence that firms not targeted by anti‐abuse provisions saw reductions in their federal tax burden on foreign income. Overall, while the tax burden on domestic income decreased significantly, our findings suggest the tax burden on the foreign earnings of US multinationals is largely unaffected despite the overhaul of the international tax system. Importantly for US multinationals' investment decisions, while foreign income was heavily tax‐favored prior to tax reform, we find that foreign and domestic incomes are similarly taxed after TCJA enactment.

Publisher

Wiley

Subject

Economics and Econometrics,Finance,Accounting

Reference29 articles.

1. Measuring the Effects of Corporate Tax Cuts

2. International taxation and multinational firm location decisions

3. Carrizosa R. Gaertner F. B. &Lynch D.(2021).Debt and taxes? The effect of TCJA interest limitations on capital structure. Working paper University of North Carolina at Charlotte and University of Wisconsin–Madison.

4. De Simone L. McClure C. &Stomberg B.(2021).Examining the immediate effects of recent tax law changes on the structure of executive compensation. Working paper University of Texas at Austin University of Chicago and Indiana University.

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