The decision of Trump administration to cut corporate taxes from 35 to 21 percent has led to major changes in the scenario. Firms have been strategizing on how to capitalize on opportunities presented by the tax cut. The Cupertino-based tech giant Apple Inc. recently announced investment of $350 billion in next five years. This would create more opportunities for employment and bolster the economy of the country. This impressed the U.S. President Donald Trump, who in response, tweeted that his policies would help companies bring money back to the U.S. He believed that this step was taken by Apple to capitalize on tax cuts. Analysts outlined that this move would help shareholders of the tech giant to make more money and help the company to strengthen its position in the global industry.
Though Trump took the decision to cut taxes for reduce the rate of unemployment and strengthen the country’s economy, this step has helped companies to maximize their profitability. However, predicting the exact impact of the decision for the future is difficult, but companies are adopting a new strategy in the wake of tax cuts: stock buybacks. In this scenario, companies are buying back its own shares by trading on the stock exchange. This reduces the number of shares of investors, therefore, giving more control to companies.
Speaking during the panel at the World Economic Forum at Davos, Switzerland, David Rubenstein, the Co-Founder of the global private equity firm Carlyle Group, said that companies will offer bigger dividends, adopt strategy of acquisition, and do stock buybacks. He also predicted that it will inflate the U.S. economy a bit. Moreover, he outlined that benefits reaped by the U.S. companies of the tax cuts would be evident in the future.
The billionaire investors and philanthropist, Rubenstein said, “What people don’t realize is that when we have these tax cuts in the United States, they’re based on 10-year projections of what revenues or costs are going be, so we really don’t know.”
Other top executive has expressed similar opinions and given similar projections. Bank of America chief Brian Moynihan outlined that the large portion of savings from tax cuts would be invested in stock buybacks and providing more dividends.
Supporters of the bill claimed that this would enhance wages of middle class people by an average of $4,000 annually. While critics claimed that it would lead to income inequality and enhance national deficit.
Republicans have claimed that the recent massive tax cuts are focused on empowering middle-class people. However, this claim contradicts what Rubenstein and Moynihan have opined. Rubenstein did not refuse that this new tax bill will only be beneficial for the U.S. companies. There will be some benefits for middle-class people as well. He refrained from making projections about the impact of the bill. The impact of such massive bill cannot be made in a short time. The world must wait and see how it affects the U.S. economy and consequently, the world economy in coming decade.