U.S. technology heavyweights like Apple, Amazon and Intel along with Wall Street`s biggest banks look like the early winners from Republicans` corporate tax cuts, boosting their bottom lines by more than $11 billion so far, a Reuters analysis of first-quarter earnings showed.
S&P 500 companies on average have slashed their median effective tax rates to 21 percent in the March quarter, down 6 percentage points from a year ago, according to an analysis of 252 earnings reports. That has translated into a nearly $18 billion reduction in income tax provisions in the first quarter, more than half of which accrued to the benefit of the tech and finance industries.
The financial and technology sectors lead others in the size of their profits, and they also reduced their effective tax rates more than others during the most recent quarter.
In the latest big example, Apple Inc
Companies` tax rates rise and fall over time for a variety of reasons, making it difficult to say how much of the quarter`s broad tax-rate decline was a direct results of the Tax Cuts and Jobs Act passed by Republican lawmakers in December.
However, this quarter`s drop in average tax rates provisioned by recently reporting S&P 500 companies was dramatic compared with changes in the same quarter in recent years, and many companies attributed their lower tax rates to the fiscal overhaul. The companies in the Thomson Reuters analysis had median tax rates of 27 percent in the first quarter of 2017 and 29 percent in the first quarter of 2016.
About a third of expected U.S. corporate earnings expansion in the March quarter is a result of the tax cuts, a trend that is likely to continue through 2018, said Patrick Palfrey, an earnings analyst at Credit Suisse.
"What we`re experiencing is a very strong underlying growth trend, which is being driven by revenue and margin growth," Palfrey said. "That`s being augmented by the tax change."
The biggest overhaul of the U.S. tax code in over 30 years, the new law slashes the corporate income tax rate to 21 percent from 35 percent and reshapes how the government taxes multinational corporations.
Its passage pushed Wall Street to record highs, with analysts recently forecasting a 25 percent leap in aggregate S&P 500 earnings in the March quarter, according to Thomson Reuters I/B/E/S.
S&P 500 information technology companies on average slashed their first-quarter effective tax rates by 9 percentage points, outdone only by the telecommunication group`s 10 percent reduction. They are followed by financials, which on average cut their tax rates by 8 percentage points.
Apple cut its effective tax rate to 15 percent in the March quarter from 25 percent a year before.
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