Author Topic: Lower Corporate Taxes and long run EBIT Margins  (Read 1113 times)

LongHaul

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Lower Corporate Taxes and long run EBIT Margins
« on: November 29, 2018, 07:42:43 AM »
Anyone have have any thoughts/opinions/experiences on whether US companies will keep any portion
of the lower corporate tax rate vs how much will be passed on to consumers?


rb

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Re: Lower Corporate Taxes and long run EBIT Margins
« Reply #1 on: November 29, 2018, 12:17:44 PM »
I'd say that the companies will keep most of the lower corporate taxes.

Most of the tax cuts would be competed away and passed to the consumers under a system of perfect competition. However under a system of perfect completion most companies' valuation would be book value. But that's not what you see out there in the world. In fact we're pretty far from that.

Jurgis

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Re: Lower Corporate Taxes and long run EBIT Margins
« Reply #2 on: November 29, 2018, 12:29:54 PM »
Yes, it seems that companies have learned the lesson of (im?)perfect capitalism: screw free markets, screw supply and demand, price wars are for wussies only, keep prices high (and executive compensation higher).

Dis iz good for shareholderz, ya?  8)
"Before you can be rich, you must be poor." - Nef Anyo
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SHDL

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Re: Lower Corporate Taxes and long run EBIT Margins
« Reply #3 on: November 29, 2018, 01:20:33 PM »
Like rb said, the theory is that this depends on the mode of competition.  So at one end of the spectrum you have pure commodity businesses with no market power at all, and one should expect those guys to have a hard time keeping any of the tax benefits.  At the other end of the spectrum you have (near-)monopolists who should have a relatively easy time keeping most if not all of the benefits. 

So the rich get richer and the poor get poorer, not just between capitalists vs others, but also between owners of good vs bad businesses. 

BTW, a related but different question is:  Is it really safe to assume that the Trump tax cuts are permanent?  Personally Im super skeptical, although Id be delighted to be proven wrong.

LongHaul

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Re: Lower Corporate Taxes and long run EBIT Margins
« Reply #4 on: November 29, 2018, 02:56:33 PM »
Has anyone seen or heard of companies lowering prices/margins due to the lower tax?
The only thing I heard was a utility lowering rates a bit.

I think the competitive industries will largely have to lower prices with the lower tax rates.  The less competitive industries and companies may keep them longer.  Hard to say.


I think there is a good chance that corp rates stay low in the US as much of the rest of the world has low corp rates.
I would expect personal tax rates to go up with the huge deficit in boom times though.

Jurgis

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Re: Lower Corporate Taxes and long run EBIT Margins
« Reply #5 on: November 29, 2018, 03:26:01 PM »
https://www.nytimes.com/2018/11/25/opinion/monopolies-in-the-us.html

Somewhat interesting graph about monopolization of business. (Yeah, some of the data is a bit misleading, but that's for observant to notice.)
Even some "commodity" businesses are no longer very competitive, but rather oligopolies. Like Buffett observed too.
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SHDL

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Re: Lower Corporate Taxes and long run EBIT Margins
« Reply #6 on: November 29, 2018, 04:53:28 PM »
Has anyone seen or heard of companies lowering prices/margins due to the lower tax?
The only thing I heard was a utility lowering rates a bit.

I think were seeing some margin compression going on in the retail space, though I cant tell you how much of that is driven by the tax cut.  Given the macro backdrop, I imagine much of this is happening behind the scenes through an inability to raise prices in the face of rising costs as opposed to outright price reductions.
« Last Edit: November 29, 2018, 06:53:42 PM by SHDL »

RichardGibbons

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Re: Lower Corporate Taxes and long run EBIT Margins
« Reply #7 on: November 29, 2018, 06:42:49 PM »
Has anyone seen or heard of companies lowering prices/margins due to the lower tax?

MGIC put out a press release a while back claiming that they were lowering rates because of lower taxes.

rb

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Re: Lower Corporate Taxes and long run EBIT Margins
« Reply #8 on: November 29, 2018, 08:23:27 PM »
Has anyone seen or heard of companies lowering prices/margins due to the lower tax?
The only thing I heard was a utility lowering rates a bit.

I think the competitive industries will largely have to lower prices with the lower tax rates.  The less competitive industries and companies may keep them longer.  Hard to say.


I think there is a good chance that corp rates stay low in the US as much of the rest of the world has low corp rates.
I would expect personal tax rates to go up with the huge deficit in boom times though.
Yea, all utilities will have to lower rates. It's baked into the formula.

I also agree with the view around the fiscal issue. The have to close the gap by at leas 2% of GDP. The republican fantasy is that they'll do it through cuts to Medicare and Social Security. But that just ain't gonna happen. So taxes go up. But yea I don't think they'll make up all of it through corp taxes. I think that they'll pass some monstrous tax package that's a million pages long that will basically nick everything a little bit to make up the amount needed.

LongHaul

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Re: Lower Corporate Taxes and long run EBIT Margins
« Reply #9 on: November 30, 2018, 08:08:52 AM »
Has anyone seen or heard of companies lowering prices/margins due to the lower tax?

MGIC put out a press release a while back claiming that they were lowering rates because of lower taxes.

Thanks for posting this.  Interesting because I would imagine that almost all of insurance is very, very price competitive and it sounds like MGIC competition also lowered rates to reflect the lower US corp tax rates.