US TAX CUTS
BRIAN KANTOR: Why earnings are not always a reliable measure
The definition of earnings has changed so much, while ‘dividend’ means the same as it did 50 years ago
You may think that cutting company tax rates in the US from 35% to 21% would boost taxed earnings. But not so fast. While the longer-run effect of lower taxes will clearly benefit shareholders, the immediate effect of a lower tax rate can significantly reduce, rather than improve, the bottom line. This is the case with some of the very large US banks that reporting or about to report their latest results. Citibank, for example, will be making enough of a tax charge to its earnings — as much as $22bn — for the bank to post a loss for its 2017 financial year. Some of the other major US banks, including JPMorgan, will be deducting large sums (in its case $2.4bn) as a once-off adjustment for lower tax rates to come. Wells Fargo, by contrast, was able to add $3.35bn to its earnings, as did another large bank, PNC. The banks and companies that are able to immediately boost earnings have net deferred tax liabilities — about $2.37bn worth in the case of PNC. These provisions against future ...
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