uploads/2017/10/US-Corporate-Tax-Rate-versus-Effective-Tax-Rates-2017-10-05-1.jpg

Weighing Trump’s Tax Rates against Agribusiness Rates

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Updated

The new tax plan

The Trump administration’s latest tax plan was announced on September 27 and has drawn criticism as well as support. Some believe that the new tax plan will create a wider deficit—a sticking point for the bill when it is presented to US Congress. Others believe that the deep tax rate cuts may not be necessary to achieve the desired objective.

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The details

Perhaps the most interesting part of the tax plan for investors would be the reform of corporate tax rates. Corporate taxes rates in the US would come down from the current 35% to 20% in Trump’s latest plan, and fertilizer companies subject to income tax in jurisdictions within the US would likely benefit from this new structure.

The proposed tax reform would also cut tax rates for certain individuals, do away with several itemized deductions, and double the standard deductions for certain individuals.

Where companies stand

In the above chart, you can see the five-year effective tax rate for four agricultural chemical companies (MOO) headquartered in the US: FMC Corp (FMC), Monsanto (MON), CF Industries (CF), and Scotts Miracle-Gro (SMG).

All these companies have had an effective tax mostly above Trump’s proposed 20% tax bracket. The effective tax rate is the average tax rate at which a corporation or an individual is taxed. For example, CF Industries (CF), which produces nitrogen fertilizer and is headquartered in the US, had an effective tax rate of 30% in fiscal 2016 and an effective tax rate of 37.4% in fiscal 2015.

Now let’s look at the effective tax rate of companies outside the US.

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