Tax Cuts and Jobs Act (2017)
The Tax Cuts and Jobs Act of 2017 (TCJA) was the most significant overhaul of the US federal tax code since 1986, permanently reducing the corporate income tax rate from 35% to 21%, substantially revising individual tax brackets and deductions, and moving the US toward a territorial international tax system.
Signed into law in December 2017, the TCJA had immediate and lasting implications for corporate earnings, valuations, and capital allocation behavior across US equity markets. The law's most consequential provisions addressed corporate taxation, international tax treatment, and individual income taxes.
The reduction in the corporate tax rate from 35% to 21% was a permanent, structural change that directly increased after-tax earnings for profitable US corporations. Because equity valuations are fundamentally driven by earnings and cash flows, this change mechanically increased the intrinsic value of corporate equity — analysts estimated that for the S&P 500 in aggregate, the tax cut added roughly 7-10% to aggregate earnings per share. Sectors with higher effective tax rates (financial services, retail, domestic industrials) benefited most; sectors already paying below the statutory rate through existing deductions (utilities, real estate) benefited less.
The international tax reforms were complex but practically significant. The TCJA moved from a worldwide taxation system — in which US companies owed US tax on foreign earnings when repatriated — to a territorial system, under which most foreign earnings of US subsidiaries are exempt from US tax. A one-time deemed repatriation tax at reduced rates was imposed on accumulated overseas earnings, bringing an estimated $400+ billion in foreign cash back into the US domestic financial system. Technology companies with large overseas cash balances (Apple, Microsoft, Alphabet) were among the entities most directly affected.
New provisions including the Global Intangible Low-Taxed Income (GILTI) tax and Base Erosion and Anti-Abuse Tax (BEAT) were designed to prevent profit shifting to low-tax jurisdictions. The 20% deduction for qualified business income (QBI) from pass-through entities created significant tax planning opportunities for business owners using S-corporations, partnerships, and LLCs.
On the individual side, the TCJA reduced marginal rates, roughly doubled the standard deduction, capped the state and local tax (SALT) deduction at $10,000 (a significant tax increase for high-income residents of high-tax states), and nearly doubled the estate tax exemption. Most individual provisions are scheduled to expire after 2025 absent further legislation.