Biggins Lacy Shapiro & Company, LLC

How is the Tax Cuts and Jobs Act Impacting U.S. Site Selection Decisions?


The GOP tax reform law has increased U.S. competitiveness but is drawing fire from critics 

Republicans expressed lofty goals to the citizens and businesses of the U.S. when they passed the Tax Cuts and Jobs Act (TCJA) in late 2017. The bill promised to bolster the middle class while encouraging companies to continue investing heavily in the U.S. It’s become a talking point in many politicians’ campaigns – on the left and right – as they run for office or re-election in the 2018 midterm elections.

Since the bill was passed, a Monmouth University poll from this summer shows its sinking popularity with the American voter — just 34 percent of Americans now call the TCJA a good idea. Many have said they are not seeing the extra money they were promised in their paychecks.

However, from a site selection angle, the bill has helped increase U.S. competitiveness on the global stage and delivered immediate results. A projection from the tax policy nonprofit, Tax Foundation, says the TCJA will help create more than 200,000 jobs in the U.S. in 2018.

What have been the immediate results of the tax reform bill?

Since President Trump signed the bill into law, the U.S. business community has reported generally positive feedback. Many large brand name companies like AT&T, Home Depot, Apple, JetBlue and Walmart have reported new bonuses for employees at an average of $1,000 in addition to salary increases. The bill’s passage also paved the way for several large capital expenditure announcements including:

  • Apple: $30 billion in U.S. capital projects over the next five years and a 20,000-employee campus.
  •  Pfizer: $5 billion in U.S. capital projects over the next five years, $200 million in charitable contributions, $100 million in employee bonuses, and $500 million in employee pension plan contributions.
  • ExxonMobil: $50 billion U.S. capital projects over the next five years including drilling operations in West Texas and New Mexico.

What are the criticisms of the TCJA?

The TCJA has drawn heat from critics on Capitol Hill and across the U.S. One of biggest issues is that while the infusion of offshore cash back to the U.S. and tax rate reduction are obvious positive features of the tax reform bill, the bill does not stipulate how the increased after-tax earnings must be allocated. 

While many economists would have preferred more pay raises for U.S. workers, new job creation, new capital investments, and additional R&D spending, an overwhelming majority of deferred foreign earnings will go to company stock buybacks, dividend payouts, and bonuses for executives. 

In fact, the Wall Street Journal reports that share buy-backs in December 2017 through February 2018 more than doubled the previous year’s total, exceeding $200 billion for S&P 500 companies. Critics have also questioned how much of the recently announced capital investments and employee pay raises and bonuses would have occurred regardless of the TCJA passing.

Other criticisms of the TCJA revolve around ambiguity on some of the law’s changes such as a report by the New York Times that professional sports teams could now be exposed to capital gains taxes when trading players.

What are the long-term impacts of the TCJA?

In the short term, The Tax Cuts and Jobs Act increases after-tax returns on investment through lower, more competitive tax rates for U.S. businesses. It also resolves a market inefficiency in the flow of foreign earnings back to the U.S. from multinational corporations.

Long-term effects of the TCJA are uncertain as strategies still exist for multinational corporations to avoid paying U.S. corporate income taxes. The TCJA may simply be the latest strike at the endless whack-a-mole approach to corporate taxation of multinational corporations.

While new national corporate income taxation structures continue to be attempted and developed worldwide, the only proven and economically efficient tax structure for attracting investment from multinational corporations is low-rate, broad base taxation systems or simply no taxation at all.

That being said, although tax rates are a significant factor in corporate site selection decisions, access to markets, legal and regulatory issues, skilled labor and available infrastructure continue to play just as important of a role in a company’s location decision-making process.

Kyle is a Senior Consultant with Biggins Lacy Shapiro & Co., one of the largest specialty site selection and incentives advisory firms in North America. Since joining the firm’s site selection and incentives practice in 2015, Kyle has worked to optimize value in location decisions for client projects including headquarters, data centers, office, and industrial facilities. Follow Kyle Syers on LinkedIn or get in touch with him directly at ksyers@BLSstrategies.com.


Published: 9/5/2018
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