Corporate Tax Reform, Deferred Taxes, and the Immediate Effect on Book Profits
Jana Smith Raedy
University of North Carolina at Chapel Hill
Jeri K. Seidman
University of Texas at Austin - McCombs School of Business
Douglas A. Shackelford
University of North Carolina Kenan-Flagler Business School; National Bureau of Economic Research (NBER)
July 14, 2011
This paper analyzes the impact of GAAP-mandated adjustments to deferred tax accounts when corporate income tax rates change. Using hand-collected data from the tax footnotes of the Fortune 50, we estimate that a reduction in the corporate tax rate from 35% to 30% would substantially affect the accounting earnings, capital, and effective tax rate of many companies. For the 18 publicly-traded Fortune 50 companies with a net deferred tax asset position, the total drop in accounting earnings would be $12 billion, with the banking industry experiencing some of the largest earnings decreases. For the 31 publicly-traded Fortune 50 companies with a net deferred tax liability position, the total jump in accounting earnings would be $28 billion, with the energy industry enjoying many of the largest increases. Although these large, one-time adjustments to the deferred tax accounts do not affect cash taxes paid, users of the financial statements should be aware that the deferred tax accounts may be significantly altered if and when tax rates change and that these effects will be reflected in net income.
Number of Pages in PDF File: 25working papers series
Date posted: July 15, 2011
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.406 seconds