New Tax Law Brings Short Term Loss
Goldman Sachs announced to shareholders that new tax legislation will result in a one time loss of $5 billion dollars of profit. Goldman Sachs is the first major financial institute to announce an impact due to new rules that will affect all overseas holdings and assets, other large businesses will likely soon follow. The tax code changes are sweeping in nature and promise several changes. Some of which will offer short term pains to growth through the sudden loss of profit.
Goldman Sachs currently has several billion dollars of assets overseas. Prior to the new legislation, as long as money held overseas did not enter the U.S., it was exempt from corporate taxes.
The new legislation mandates a one time 15.5 percent payment on liquid or eight or less percent on illiquid assets. This will affect companies regardless of whether money renters the United States or not. Many other large corporations including major banks like Citigroup and JPMorgan has more than $2 trillion dollars currently held overseas. A one time tax on these earnings is expected to raise $339 billion over the next decade,payable in eight years according to the Joint Committee on Taxation.
This loss will eventually be outweighed by other aspects of the law. The reduction in overall taxes and the tax code congruent with current international standards will be a long term benefit. A reduction of the corporate tax rate from 35 to 21 percent will result in an estimated savings of $1.3 trillion over the next decade for American business. The law will also change from a worldwide to a territorial tax designation. Under the new system, domestic revenue will still be taxed, but certain types of revenue from outside the U.S. will be largely tax-exempt going forward,regardless of whether it stays overseas or reenters the United States. This should reduce the incentive for businesses to simply keep assets overseas. The hope is that it will increase manufacturing at home. Over the long term, this will create continued increased revenue. The short term hurt to multinationals will be buffered by eight years to pay the one-time tax. After which the benefits will become more substantial.