Nickname:   Christmas Eve Tax Cut

Goals of the 2017 Tax Cut
  • Reduce taxes on corporations & help them repatriate cash to the United States from foreign subsidiaries
    • With this extra cash, they would invest in the US and create additional spending/jobs
    • Reduced Top rate from 35% to 21%

Important Provisions of the Tax Cuts and Job Act of 2017
  • Limited the amount of interest expense that companies can deduct to 30% of EBITDA
  • Limited the 1031 Exchange tax benefit to real estate only (no longer can be used for art or collectibles)

Impacts on Municipal Bonds
  • Reduction of top corporate tax rate from 21% to 35% reduced the benefits of corporate holding tax-free municipal bonds
  • Resulted in multi-billion reduction of muni holdings by corporations

2017 Tax Cut Criticisms
  • Increased the US budget Defecit
    • Although growth was strong in 2017 and 2018, the defecit started to grow
    • The Deficit had been shrinking in previous years
  • The benefit of the cuts went mostly to corporations and the affluent
  • Repatriating cash to the US was never a problem in reality
    • Companies could already take loans against that cash to invest in the US
    • Companies used that cash held internationally to invest in US assets - the cash was already put into use in the US economy
    • This is shown by the fact that not much of the cash was repatriated within a year of the tax cut
    • The foreign designation was really just an accounting factor, not a true indication of where the $ was actually held or invested
    • Less than 20% of 3.0 Trillion repatriated as of October 18