What Do We Know About the Effects of the Tax Cuts and Jobs Act?
On December 22, 2017, the U.S. tax code was dramatically changed when what is commonly referred to as the Tax Cuts and Jobs Act (TCJA) was signed into law. As tax scholars, we have a keen interest in knowing how the TCJA will change the world. On this page, we are posting empirical academic studies that focus on specific provisions of this monumental tax reform.
We plan to update this page as more studies come out. Further, many of these studies are early working papers, and have not been vetted by the peer-review process, so check back regularly for updates.
Many of these articles below I have curated on my own, or others have shown to me. However, if you would like to request that we add your study, please email me at email@example.com. We are only posting studies that are hosted elsewhere (we prefer they be accessible on SSRN), and that are (1) empirical, (2) academic and (3) focus on the TCJA.
Pension Contributions and Tax-Based Incentives: Evidence from the TCJA
Ahmed, Ahmed and Zabai, Anna
We document that corporate pension contributions respond to tax-based incentives using the 2017 Tax Cut & Jobs Act (TCJA) as a natural experiment. The TCJA cut the U.S. federal corporate tax rate, temporarily increasing contribution incentives for sponsors of defined-benefit retirement plans. We exploit cross-sectional variation in ex-ante exposure to these incentives. We find that the tax break induced an extra $3 billion of sponsor contributions to medium- and large-scale plans in 2017. But we also find strong evidence of a reversal, both in terms of sponsor contributions and plan funding ratios by 2018. We find no evidence of impact on plan asset allocations. Our results suggest that the TCJA did not have a long-lasting impact on corporate defined-benefit pension funds. More
Taxes and IPO Pricing: Evidence from U.S. Tax Reform
This study examines when and how tax reform impacts the pricing of IPOs. Using the Tax Cuts and Jobs Act of 2017 (TCJA), we examine IPO pricing during the periods of anticipated and post-tax reform. First, we document that firms completing an IPO following the passage of the TCJA experience an increase in valuation. The increase in valuation is significantly lower for firms with net deferred tax assets and U.S. based multinational firms, consistent with those firms benefiting less from the reform. Second, we fail to document an increase in valuation for firms completing their IPO during the period of anticipated tax reform. We further observe that firms did not experience an increased probability of an upward pricing revision during the book-building process during this period, suggesting that the IPO market was unwilling to impound the benefits of anticipated tax reform into offer prices until enactment. This result contrasts with research on the pricing of tax reform for existing publicly traded stock, where prices impound the anticipated benefits from tax reform, far in advance of enactment. More
Tax and Nontax Incentives in Income Shifting: Evidence from Shadow Insurers
Income shifting is a significant concern among policymakers worldwide and a growing area of academic interest. We use the shadow insurance setting to study the interplay between tax and nontax incentives in income shifting. Shadow insurance involves intercompany transactions ostensibly designed to help firms meet regulatory capital requirements. We argue that prior to the Tax Cuts and Jobs Act of 2017 (TCJA), foreign owned life insurance firms could use it to shift their U.S. profits to tax havens and save taxes. We find that although nontax incentives appear to be the dominant factor behind firms’ use of shadow insurance, tax considerations also played a significant role for certain firms. While our results suggest that taxes provided an important incentive for foreign owned life insurance firms to use shadow insurance, our study also highlights that, in this setting, nontax considerations appear to motivate U.S. owned firms’ use of tax havens. More
(Un)intended Consequences? The Impact of the 2017 Tax Cuts and Jobs Act on Shareholder Wealth
We study the stock market reactions to the Tax Cuts and Jobs Act (TCJA), the most significant structural U.S. tax reform in over 30 years. In line with the stated intent of TCJA proponents, we find that the Act benefited highly taxed firms. However, the Act hindered firms with international operations as well as firms with high interest expense and tax losses. Counter to claims that the TCJA would quickly spur economic growth, we find that financially constrained and high growth opportunity firms did not benefit. Rather, market participants anticipate that most of the TCJA’s benefits will be passed on to shareholders via higher corporate payouts. We confirm these market expectations by documenting that firms did increase payouts via repurchases after the TCJA, but did not increase their corporate investments. More
The Impact of U.S. Tax Reform on U.S. Firm Acquisitions of Domestic and Foreign Targets
The Tax Cuts and Jobs Act of 2017 (TCJA) eliminated disincentives for U.S. multinational corporations (MNCs) to repatriate foreign subsidiaries’ earnings, but the TCJA included additional provisions that will impact U.S. firms’ acquisition decisions. We find that both the likelihood and number of domestic and foreign acquisition announcements made by U.S. firms decreased on average after the TCJA but increased with repatriation taxes that U.S. MNCs faced prior to the TCJA. This effect is stronger for those MNCs that held larger amounts of foreign cash prior to the TCJA. The post-TCJA increase in foreign target acquisitions is driven by MNCs that are more likely to be subject to the global intangible low-tax income (GILTI) provisions after the TCJA. Our results suggest that the GILTI provisions introduced a contradictory incentive for U.S. MNCs with higher returns from intangible assets to investment in foreign target firms with lower returns on tangible property. More
What Determines Where Opportunity Knocks? Political Affiliation in the Selection of Opportunity Zones
Frank, Mary Margaret and Hoopes, Jeffrey L. and Lester, Rebecca
We examine the role of political affiliation during the selection of Opportunity Zones, a place-based tax incentive enacted by the Tax Cuts and Jobs Act of 2017. We find governors are on average 7.6% more likely to select a census tract as an Opportunity Zone when the tract’s state representative is a member of the governor’s political party. Further, we find that this effect ranges from 0.0% to 26.4% based on the state-level processes governors used to select Opportunity Zones, such as engagement of professional advisors and implementation of public comment procedures. These effects are incremental to important demographic factors that also increased the likelihood of selection, such as lower income levels and improving local conditions. These results provide evidence relevant for current Congressional legislative proposals by informing the extent to which state-level politics and processes affected the implementation of this incentive. More
Unlocking Trapped Foreign Cash, Investor Types, and Firm Payout Policy
I study whether trapped foreign cash levels and investor type explain variation in US-based multinationals’ payout policy responses to tax-repatriation-driven cash windfalls. To do so, I use the deemed mandatory repatriation of trapped foreign cash included in the 2017 Tax Cuts and Jobs Act (TCJA). I find my measure of the level of “unlocked” trapped foreign cash (UTC) is related to increases in repurchases and dividends observed post-TCJA. Motivated by prior research, I examine whether this increase in payout varies with institutional investor type: transient, dedicated, and quasi-indexers (Bushee 2001). I find that firms with high UTC and low (high) dedicated ownership see an increase (no change) in repurchases post-TCJA. I do not observe similar variation with investor type for dividends. More
Changes in CEO Compensation after the Tax Cuts & Jobs Act and the Impact of Corporate Governance: Initial Evidence
Luna, LeAnn and Schuchard, Kathleen, and Stanley, Danielle
The Tax Cuts and Jobs Act (TCJA) expanded the impact of IRC Section 162(m) by disallowing deductions for any compensation over $1 million paid to top executives. Under prior law qualified performance-based pay was exempt from the $1 million cap. We examine whether TCJA affected compensation decisions in the first year following enactment. More
Stock Repurchases and the 2017 Tax Cuts and Jobs Act
Bennett, Benjamin and Thakor, Anjan and Wang, Zexi
We study the effects of the 2017 Tax Cuts and Jobs Act (TCJA) on repurchases, leverage and investment. The TCJA generatestax windfalls through a repatriation tax cut and a corporate income tax cut. More
Where Is the Opportunity in Opportunity Zones? Early Indicators of the Opportunity Zone Program’s Impact on Commercial Property Prices
Sage, Alan and Langen, Mike and Van de Minne, Alex
In December 2017, the U.S. Congress passed into law the Opportunity Zone (OZ) program, offering significant tax benefits for property investments in designated low-income census tracts. More