Big businesses are cashing in on Trump’s tax cuts

WASHINGTON — For most people, the tax cuts that President Donald Trump signed into law this summer have yet to materialize. Only after Americans file their taxes next year will the savings become apparent, launching what Republicans hope will be a “refund boom” that lifts the public’s view of the economy.

Many of America’s largest companies have not had to wait. In the months since the law’s passage in July, corporations like Walmart, Amazon, Verizon and Eli Lilly have all disclosed in securities filings that the law would reduce their cash tax payments in the near term. AT&T projected that it would save as much as $2 billion in taxes just this year.

Those corporate tax savings have already started to have an effect on the federal budget. Between July and November, the last full month of data, revenue from the corporate income tax has dropped by roughly a third, or $52 billion, compared with the same period the year before, according to Treasury data.

Driving the cash savings is not a change in the corporate tax rate, which Republicans kept at 21%. Instead, a constellation of tax breaks has given companies a better ability to reduce the amount of income subject to tax. Rather than writing off the costs of new investments and research projects bit by bit over several years, companies are now able to deduct the full cost of these expenses in one year.

The seemingly technical timing change was the target of years of business lobbying in Washington. Companies had previously been able to deduct some of these costs this way, but Congress had let the tax breaks expire in recent years. The new Republican law made the prized provisions permanent features of the tax code. It also expanded them to temporarily include the cost of factories that start construction during Trump’s second term.

“There’s no question these provisions are providing tax benefits to not just corporations but businesses more broadly,” said Joseph Rosenberg, a senior fellow at the Tax Policy Center, a think tank. Rosenberg said the policies are, as far as corporate tax breaks go, mostly uncontroversial among economists.

“I won’t say there’s consensus among economists, because there never is, but there’s a widely held belief if you want to try to incentivize investment through the tax system, then these types of provision are the most cost-effective and best way to do that,” he said.

At the root of the tax breaks’ benefit is the time value of money: the idea that a dollar today is worth more than a dollar tomorrow.

Take, for example, a company that is buying new computers. The investment tax break allows the company to write off their cost in one year, rather than over five years. That would lead to a lower tax bill in the first year, and potentially higher tax bills in the later years, when the firm won’t be able to deduct the computer costs.

What makes the tax break so enticing is the prospect of tax savings in the first year that the company can then use to generate other returns over time. It makes new investments seem more worthwhile.

“Some investments that were right on the line of not being worth it are now worth it because you have that higher return,” said Erica York, vice president of federal tax policy at the Tax Foundation, a think tank that generally favors lower taxes. “It means more projects are viable.”

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Those additional investments can, in theory, help make workers more productive, lifting their wages and the economy. In a study of the investment tax break, which was in place for several years after the passage of the 2017 tax law but had been phasing out in recent years, a team of academic economists estimated that the policy could make the economy 1% larger over the long term.

The option to deduct research and development costs all at once can, similarly, incentivize companies to spend more on innovation, potentially leading to technological advances that can benefit the economy broadly. Companies had long been able to deduct research costs immediately, but the policy lapsed for a few years to help cover the cost of the 2017 tax law, leading firms to cut back on research and development, as well as other investments and stock buybacks, academic researchers found.

At the same time, some of the Trump administration’s other policies may undercut the tax breaks, limiting their effect. Wide-ranging tariffs have scrambled many businesses’ investment planning, while cuts to federal spending on academic research could hold back progress on research and development across the economy. Trump’s tax cut in his first term prompted many companies to announce bonuses and wage increases for workers, an exuberance that has been absent for the newest tax cut.

Critics of the policies argue that they incentivize companies to take steps — invest in new equipment and develop important technology — that the market already rewards. The tax breaks are expensive, with a combined cost of roughly $650 billion over a decade, and help large, profitable firms minimize their tax payments.

“We are giving companies an awful lot of money to do something they were going to do anyway; that’s the issue with most tax incentives,” said Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy, a liberal think tank. “When companies are engaging in so much capital expenditures and so much R&D, they can keep deferring taxes indefinitely.”

Some large companies may face a limit on how far they can minimize their tax bills. A new minimum tax on corporations, created during the Biden administration, aims to make firms with more than $1 billion in annual profits pay at least a 15% tax on the earnings they report to investors, potentially clawing back some of the savings from the tax breaks.

In its third quarter earnings, Meta told investors that Trump’s new tax law would result in a “significant reduction” in its tax payments in the United States. But the company also logged a $16 billion additional cost stemming from the corporate alternative minimum tax.

Some business groups in Washington have pushed for the Treasury Department, which has already watered down some elements of the corporate alternative minimum tax, for a new carveout for the research deduction. A group of Democrats, in a letter to Treasury Secretary Scott Bessent, attacked the possibility of such a change, writing “we urge Treasury not to further rig the tax code in favor of billionaire corporations.”

The possibility that taking the research deduction would lower a company’s regular taxes enough to trigger the parallel corporate minimum tax has left some companies unsure whether to take advantage of the tax break, said Alexa Claybon, a tax principal at EY, an accounting firm.

“Taxpayers are still modeling it out and trying to make decisions,” she said. “You have to make a lot of decisions by the end of the year.”