Cash Reserves Could Be Used for Share Buybacks
Expanded Cash Flow Offers New Investment Opportunities
Due to the tax reform led by U.S. President Donald Trump, American companies are anticipating significant reductions in corporate taxes and improvements in cash flow.
According to the Wall Street Journal (WSJ) on September 1 (local time), U.S. telecommunications company Verizon reported in its recent earnings announcement that while it paid $5.6 billion in corporate taxes in cash last year, it expects to reduce its tax payment by up to $2 billion this year. Additionally, telecommunications company Lumen Technologies announced that it has applied for a $400 million corporate tax refund, and energy company Diamondback Energy stated that it expects to save $300 million in corporate taxes this year. Engineering firm Leidos also projected that its cash flow would increase by $150 million this year as a result of the tax reform.
This outlook for corporate tax savings and expanded cash flow among U.S. companies appears to be the result of the "One Big Beautiful Bill Act (OBBBA)," which President Trump signed into law on July 4. The bill essentially restores large corporate tax benefits that were temporarily introduced during Trump’s first administration, including expanded accelerated depreciation. It allows companies to immediately expense costs related to research and development (R&D), interest payments, and capital investments, rather than amortizing them over several years. Since amounts expensed in accounting are excluded from the taxable base, this effectively reduces the tax burden for companies.
The WSJ noted, "As companies’ cash flow improves, they will have more funds available for additional investment or share buybacks, and it could also serve as a buffer against tariff increases." The report predicted that industries such as energy, retail, telecommunications, and chemicals would benefit from increased cash reserves.
Large corporations have welcomed the Trump administration’s tax reform, saying it will accelerate research and development and technology investment. Chris Stansbury, Chief Financial Officer (CFO) of Lumen Technologies, stated, "This bill will make the United States more competitive in the field of artificial intelligence (AI), and the increased attractiveness of spending on network infrastructure will lead to greater investment. In particular, the corporate tax provisions are intended to enable the U.S. to lead the technological innovation of this era."
However, the WSJ also analyzed, "The changes to depreciation rules only accelerate the timing of deductions, not the total amount. While companies will see an immediate reduction in their tax burden, they may face future constraints from international tax regulations or limits on interest deductions."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
