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

Posted: 8 Mar 2023

See all articles by Scott Dyreng

Scott Dyreng

Duke University - Accounting

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Mary Vernon

University of Illinois at Chicago - Department of Accounting

Date Written: January 26, 2023

Abstract

We quantify the immediate net effect of the Tax Cuts and Jobs Act (TCJA) on the tax burden of corporate profits for public US corporations. We find similar reductions in effective tax rates for domestic and multinational firms, yet the entirety of multinational tax savings stemmed from tax savings on their domestic, not foreign, earnings. We 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. We find some evidence that firms not targeted by anti-abuse provisions saw reductions in their federal tax burden on foreign income. Overall, while the tax burden on domestic income decreased significantly, our findings suggest the tax burden on the foreign earnings of US multinationals is largely unaffected despite the overhaul of the international tax system. Importantly for US multinationals’ investment decisions, while foreign income was heavily tax-favored prior to tax reform, we find that foreign and domestic incomes are similarly taxed after TCJA enactment.

Keywords: corporate taxation, tax reform, Tax Cuts and Jobs Act

Suggested Citation

Dyreng, Scott and Gaertner, Fabio B. and Hoopes, Jeffrey L. and Vernon, Mary, The effect of US tax reform on the taxation of US firms’ domestic and foreign earnings (January 26, 2023). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4352261

Scott Dyreng (Contact Author)

Duke University - Accounting ( email )

Box 90120, Fuqua School of Business
Durham, NC 27708-0120
United States

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Mary Vernon

University of Illinois at Chicago - Department of Accounting ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States

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