Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Column: The corporate Taxman cometh - Mike Dolan

Economy Mar 12, 2021 06:25AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

By Mike Dolan

LONDON (Reuters) - Global investors are obsessing about borrowing costs, discount rates and inflation risks as the world emerges from the shocking pandemic - but they are also starting to pore over coming corporate tax hikes that could reverse a decades-long decline.

Few governments struggling to vaccinate populations and reopen economies are likely to raid companies just yet. Many are still offering tax holidays or credits as ballooning government debts are bridging the gap in revenues as well as funding public supports and new spending stimulus.

But as Britain showed last week with a planned 7 percentage point corporate tax rise to 25% in 2023, the taxman is coming.

Although no timeline is set, U.S. President Joe Biden has promised to at least partly reverse predecessor Donald Trump's business tax cuts and lift corporate income tax 7 points to 28%. Biden has also injected new momentum into plans for global taxation of digital and e-commerce giants, most of whom benefitted disproportionately from pandemic lockdowns.

At a G20 meeting two weeks ago, Treasury Secretary Janet Yellen dropped a Trump administration proposal to let big firms opt out, raising hopes of meeting a Summer deadline for almost 140 countries to modernize outdated rules on taxing cross-border commerce and a global minimum corporate tax rate.

If a greener, fairer and more indebted world is the post-COVID legacy, as many investors insist, then higher corporate taxes that have been falling for decades are likely to be part of that mix too.

The average corporate tax rate across the developed world is now just two thirds of what it was 20 years ago. Government debt as a share of output in advanced economies has risen more than 50% over the same period.

According to Organisation for Economic Cooperation and Development data, total U.S. tax on corporate profits in 2019 was below 1% of gross domestic product and less than 4% of all taxation - both the lowest in at least 55 years and the lowest in the G20. The equivalent UK stats were the lowest in 25 years.

Barclays (LON:BARC) analysts reckon median effective corporate tax rates for FTSE 350 companies in Britain and S&P500 firms across the Atlantic were 19% and 20% respectively - below the 22% OECD average and 5 percentage points below eurozone averages.

"Following years of pro-business policies and falling corporate tax rates, the trend may be about to reverse," wrote Emmanuel Cau's equity strategy team at Barclays, flagging tax a medium-term threat to earnings.

Graphic: OECD chart on corporate profits tax as a % of GDP -


Cau estimates the 2023 UK corporate tax hike amounts to about a 6% earnings "headwind" for the widest sweep of the large domestically-exposed listed British companies. FTSE100 firms with greater overseas income - where 'effective' tax rates that account for different incomes, deductions and allowances were already as high as 23% - would likely take a smaller 3% hit.

Although a 'super deduction' between now and March 2023 will ease effective tax rates near term, that will not overlap with the higher headline rate when it comes and there the latter may have to be absorbed one-for-one into earnings.

Berenberg economist Kallum Pickering questioned whether the politics of Brexit and Conservative party re-election will ever see the headline tax rise come to fruition. But, if it does, he reckoned it would lift effective tax rates more than headline reductions over the past 20 years cut them and could drag on an otherwise substantial post-pandemic rebound investment and productivity.

"It is a historical irony that, upon leaving the EU, the pro-Brexit UK government has chosen to adopt a more continental-style economic policy," he said.

Cau at Barclays said a U.S. corporate tax hike may take more time but would likely have a similar impact on earnings as estimated for UK firms. Supporting that, he cited the 10% earnings upgrades that immediately followed the 8 point Trump tax cut in January 2018 - slightly more than a 1:1 relationship.

Of course, different sectors will take different hits - not least due to the variety of effective tax rates experienced. And the relative weight of certain sectors in different economies partly explains differences in total tax takes as a result.

IT and healthcare firms experience the lowest effective rates below 20%, while energy and industrials among the highest. As such, headline tax hikes may encourage the prevailing equity investment rotation from growth to beaten down 'real economy' stocks as the recovery matures.

With stock markets back at record highs overall, investors hardly seem fazed yet about the coming taxes. Massive government supports and investment spending and still historically super cheap borrowing rates all help with that.

But perhaps the very lack of market anxiety - even its acceptance of new post-pandemic priorities and norms - just underlines an inevitable reversal of 40 years business tax cuts.

Graphic: Barclays charts on falling corporate taxes over decades and effective rates -

Graphic: Barclays chart on UK corporate tax plans -

(by Mike Dolan, Twitter: @reutersMikeD; Editing by Alexandra Hudson (NYSE:HUD)) OLUSMONEY Reuters US Online Report Money 20210312T061041+0000

Column: The corporate Taxman cometh - Mike Dolan

Related Articles

Fed's Daly: 75 bps rate hike likely needed in July
Fed's Daly: 75 bps rate hike likely needed in July By Reuters - Jun 24, 2022 1

(Reuters) - San Francisco Federal Reserve Bank President Mary Daly on Friday said another 75 basis point interest rate hike in July is her "starting point," though if the economy...

Take Five: Goodbye turbulent H1
Take Five: Goodbye turbulent H1 By Reuters - Jun 24, 2022 3

Angst is running high over global recession risks as the year's mid-point approaches. So economic data and central bank talk will bear watching more than usual, and there's plenty...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Nate Johnson
Nate Johnson Mar 12, 2021 6:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Printing money, increasing government debt, increasing immigration both legal and illegal, increasing taxes, increasing minimum wage. And the Fed keeping interest rates low until maximum employment is reached... Does anyone else see the problem here?
Wayne Gillispie
Wayne Gillispie Mar 12, 2021 6:38AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Lower and middle-class wages in the USA have been stagnant for 40 years, while the upper class executives are 300-500X their average worker salary. People are tired of the greedy, millionaire politicians and execs.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email