Banks and other area businesses say they stand to gain a lot from the Trump administration’s corporate tax cuts signed into law late last year, with many expecting stronger profits, which will lead to more spending and economic growth, they said.
From business expansion to increased spending to higher wages, the effects of the $1.5 trillion tax overhaul could carry a lot of positive consequences, said Vic Pierson, the president and CEO of Galveston-based Moody National Bank.
The tax rewrite will mean that the bank could save more than $1 million during the next year, Pierson said.
“It’s a significant change for us, and we’ll look to invest that back into the community and into our lending activities,” Pierson said.
Pierson said he expected the same effects would be experienced in other corporations. Some, he said, would pass on the tax savings to shareholders, but there would also be increased spending, he said.
Congress in December 2017 passed the $1.5 trillion tax overhaul, the first major rewrite of United States tax laws since 1981.
The new tax law cut corporate tax rates from 35 percent to 21 percent, while about 80 percent of individuals were expected to see a tax cut on their returns this year.
The amount of the cut for individuals depends on which tax brackets they’re in. People in the lowest bracket, who earn less than $25,000 a year, will see a break of about $60, according to the nonpartisan Tax Policy Center.
People in the highest-earning tax bracket, who earn more than $733,000 per year, will receive a cut of about $51,000, according to the policy center.
While Trump initially indicated he would sign the tax bill into law after the new year, he ended up passing it before Christmas. That decision caused some accounting headaches for corporations who had to adjust their earnings report to reflect changes to deferred tax assets — tax payments that companies make in advance of future revenue.
The lowering of the corporate tax rate caused companies to have greater write-downs, which might look like losses on fourth-quarter balance sheets.
But the tax bill should mean that the losses of late 2017 are quickly made up in 2018 and beyond, said Jimmy Rasmussen, the president and CEO of HomeTown Bank, which had to write off about $500,000 in deferred tax assets in the last quarter.
“We’re thinking it’s certainly going to be a positive thing for the economy,” Rasmussen said. “We’re thinking it’s going to help our bottom line of three quarters of a $1 million or so.”
While some companies, including Home Depot, American Airlines and AT&T, have announced one-time bonuses for their employees since the tax overhaul was announced, there have been few companies to announce permanent raises.
Locally, it’s likely employers will pass on savings too, said Chris Doyle, president and CEO of Texas First Bank.
“I’ve heard from some of our customers say they’re going to be able to take care of their employees and maybe hire new employees,” Doyle said.