On December 22, 2017, president Donald Trump signed the Tax Cuts and Jobs Act, bringing into effect the most substantial reduction and restructuring of US personal and corporate taxes in a generation. It is either the best or the worst piece of tax legislation the US has seen in a long time, depending on your point of view, but it is certainly complex.

With respect to corporate tax, the changes are numerous and substantial. Most notably, the top federal corporate tax rate has been reduced from 35% to 21%. In one bold move, this tax cut remedies the fact that for more than 20 years US corporate income taxes (combined federal and state) have been higher than the average for G20 countries. This has not stopped the US from being a primary beneficiary of FDI, however. 


The act furthermore creates a territorial rather than a worldwide tax system, and implements a mandatory one-time tax on previously deferred foreign earnings. It allows for the immediate (one-year) write-off of certain qualified property (such as machinery and equipment), and requires companies to pay minimum taxes on foreign earnings, among other things. Analyses of the expected impact of these changes are in their early days, but the act may mean increased corporate investment at home.

Time will tell if the Congressional Budget Office is correct and the implemented tax changes will leave a legacy of more than $1500bn of additional debt. It is hoped, rather, that accelerated economic growth and the repatriation of corporate earnings will increase federal tax collections and reduce the fiscal harm. What is certain is that over the coming months and years there will be endless conflicting claims regarding the effectiveness of the tax reform to encourage new investment by domestic and foreign firms alike.  

Surveys of business leaders and site selectors generally show that corporate income tax rates have a minor influence on new project location decisions. There is just not that strong a correlation between corporate income tax rates and FDI. My guess is that financial flows into the US by domestic firms (the repatriation of offshore capital and profits) will increase much more than project flows into the US by international firms (the siting of new greenfield projects). 

One challenge we will all face is resisting the urge to explain every new FDI project by pointing to tax reform. It is not that simple. We will just have to wait before we can judge the promise and peril of US tax reform.

Gregg Wassmansdorf is senior managing director, consulting, at Newmark Knight Frank, a global real estate services firm. He is a member of the Site Selectors Guild. 

E-mail: gwassmansdorf@ngkf.com