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The Tax Cuts and Jobs Act: Which Firms Won? Which Lost?

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  • Alexander F. Wagner
  • Richard J. Zeckhauser
  • Alexandre Ziegler

Abstract

The Tax Cut and Jobs Act (TCJA) slashed corporations’ median effective tax rates from 31.7% to 20.8%. Nevertheless, 15% of firms experienced an increase. One fifth of firms recorded nonrecurring tax costs or benefits exceeding 3% of total assets. Proxies that existing studies employ to assess the TCJA’s impacts account for just half of actual impacts. Stock prices impounded those proxies during the legislative process. Total impacts were impounded the following year, once firms published their financials. These results indicate that investors find it hard to predict even large and immediate changes to company cash flows due to unfamiliar events.

Suggested Citation

  • Alexander F. Wagner & Richard J. Zeckhauser & Alexandre Ziegler, 2020. "The Tax Cuts and Jobs Act: Which Firms Won? Which Lost?," NBER Working Papers 27470, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27470
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    References listed on IDEAS

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    1. Joel Slemrod, 2018. "Is This Tax Reform, or Just Confusion?," Journal of Economic Perspectives, American Economic Association, vol. 32(4), pages 73-96, Fall.
    2. Wagner, Alexander F. & Zeckhauser, Richard & Ziegler, Alexandre, 2017. "Company Stock Reactions to the 2016 Election Shock: Trump, Taxes and Trade," CEPR Discussion Papers 11837, C.E.P.R. Discussion Papers.
    3. Wagner, Alexander F. & Zeckhauser, Richard J. & Ziegler, Alexandre, 2018. "Company stock price reactions to the 2016 election shock: Trump, taxes, and trade," Journal of Financial Economics, Elsevier, vol. 130(2), pages 428-451.
    4. Alexander F. Wagner & Richard J. Zeckhauser & Alexandre Ziegler, 2018. "Unequal Rewards to Firms: Stock Market Responses to the Trump Election and the 2017 Corporate Tax Reform," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 590-596, May.
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    Cited by:

    1. Aria Ardalan & Sebastian G. Kessing & Salmai Qari & Malte Zoubek, 2023. "Does capital bear the burden of local corporate taxes? Evidence from Germany," Volkswirtschaftliche Diskussionsbeiträge 194-23, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    2. Martín Fuentes, Natalia & Di Vito, Luca & Leite, João Matos, 2023. "Understanding the profitability gap between euro area and US global systemically important banks," Occasional Paper Series 327, European Central Bank.
    3. Crawford, Steven & Markarian, Garen, 2024. "The effect of the Tax Cuts and Jobs Act of 2017 on corporate investment11The authors wish to thank an anonymous referee, Heitor Almeida (editor), Novia Chen, Scott Dyreng, Ed Maydew, Sean McGuire, Vol," Journal of Corporate Finance, Elsevier, vol. 87(C).
    4. Kelley, Stacie O. & Lewellen, Christina M. & Lynch, Daniel P. & Samuel, David M.P., 2024. "“Just BEAT it” do firms reclassify costs to avoid the base erosion and anti-abuse tax (BEAT) of the TCJA?," Journal of Accounting and Economics, Elsevier, vol. 77(2).
    5. Christine L. Dobridge & Patrick Kennedy & Paul Landefeld & Jacob Mortenson, 2023. "The TCJA and Domestic Corporate Tax Rates," Finance and Economics Discussion Series 2023-078, Board of Governors of the Federal Reserve System (U.S.).
    6. Kim, J.H. John & Anderson, Ronald, 2024. "CEO narcissism and the agency cost of debt," Journal of Empirical Finance, Elsevier, vol. 77(C).

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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