This brand new year is about to get a whole lot better for corporations under the newly-enacted tax law. The British multinational oil and gas company, BP, will pay a one-time $1.5 billion charge to adapt to the next U.S tax rules.
BP is not alone in taking this approach under the new tax law. According to Reuters, other rivals like Royal Dutch Shell and other companies will be taking this approach to accommodate the tax requirements. In addition, BP confirmed the company expects a long-term boost from these friendly corporate tax rates.
“The massive $1.5 trillion tax overhaul that U.S. President Donald Trump signed into law last month cuts the corporate rate from 35 percent to 21 percent and temporarily reduces the tax burden for most individuals as well.”
As stated by Trading Economics, the corporate tax rates in the U.S stood at 35 percent. The country averaged 32.79 percent from 1909 to 2017. In 1969, the rate stood at an all-time high of 52.80 percent.
On the other hand, the lower tax rates will affect the tax assets and liabilities in the short term. The company’s shares dropped 1.15 percent, but the adjustment will not impact BP’s cash flow for its fourth quarter.
A report from The Guardian corroborated that BP was the latest global firm to report a hit to its earnings from the US corporate tax rate cut. This was a result of the new tax law that goes into effect at the start of the new year.
Not only have corporations started to reap the benefits, but the stock market surged after US Congress reduced the corporate tax rate to a historical low of 21 percent.
A CNBC analysis corroborated President Donald Trump’s positive reaction. Within the report, Trump said there was an overall favorable reaction from the business community and that corporations were literally going wild. Trump went on to add that in spite of Democrats refusing to support the bill, he believed there would be bipartisan work done.
The majority of Republicans in the House and the Senate enjoyed a legislative victory with the new tax bill passed and signed into law. However, critics and the opposition have voiced their concerns that the new tax plan favors the wealthy and corporations.
Paul Krugman, economist and New York Times columnist, has been critical of the Trump administration. In his latest blog post, he explained that this piece of legislation was tailored towards corporations and shareholders.
“The centerpiece of the legislation is a huge tax cut for corporations. Republicans claim that this tax cut will be passed on to workers in the form of higher wages, but most independent studies conclude that even in the long run only between one-fifth and one-quarter of the tax cut will trickle down to workers. And the fraction will be much lower in the short run — say, the next few years. So this is basically a tax cut for shareholders.”