The effect of US tax reform on the taxation of US firms’ domestic and foreign earnings

The authors attempt to quantify the immediate net effect of the TCJA on the tax burden on corporate profits for public US corporations and appears to find similar reductions in effective tax rates for domestic and multinational firms, with the entirety of multinational tax savings stemming from tax savings on their domestic, not foreign, earnings. The authors find no significant change in the federal tax burden on foreign earnings both on average and specifically for firms most likely to be subject to new anti-abuse provisions. They find some evidence that firms not targeted by anti-abuse provisions saw reductions in their federal tax burden on foreign income.

They conclude that while the tax burden on domestic income decreased significantly, their findings suggest that the tax burden on the foreign earnings of US multinationals is largely unaffected despite the overhaul of the international tax system. Additionally, they note that, in relation to the investment decision of US multinationals’, while foreign income was heavily tax-favored prior to tax reform, foreign and domestic incomes are similarly taxed after TCJA enactment.

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