Sector Gains Are Uneven under 2017 Tax Law

Pellet presents evidence that the tax law passed in 2017 will affect the present discounted value of after-tax corporate profits with significant differences across sectors. Sectors that previously had high effective tax rates, low leverage, low capital expenditures, and low foreign exposure are poised to benefit from the new tax law with stock price increases of close to 10 percent—two to three times more than the aggregate S&P 500. The new tax law is negative on net for some sectors—real estate, information technology, and utilities—because the reduction in statutory rates for sectors with already low effective tax rates will be more than offset by the tax base expansion.