Telecom companies have been lining up to kiss the ring ever since Donald Trump was elected. Between massive tax cuts and net neutrality repeal – both of which are on the cusp of becoming reality – it’s a great time to be a multi-billion-dollar telecom company.
“T-Mobile likely won’t be in a position to pay cash taxes for roughly the next seven years under tax bills currently working their way through Congress”, – T-Mobile’s CFO Braxton Carter said in Dec 6, 2017.
But just how happy are companies about the coming tax cut?
Let’s ask Braxton Carter, who appears to be visibly salivating at the prospect:
With the tax reform, and it is looking like it’s going to be a reality and we’re really excited about it, we’ve modeled the various versions of the House and Senate bill. And the bottom line is we think that we won’t be in a cash tax-paying situation given the immediate expense of capex, given the reduction of the rates – I mean even considering what could be adverse, for a short period of time, limitations on the deductibility of interest – we are not going to be in a cash tax-paying position based upon the current modeling until 2024, very end of 2023.
And you look at the prior guidance that we had out there that basically shows that during the next five-year period we’re going to be picking up $3 billion to $4 billion of additional cash flow in the business. And then once we do (get back) to a cash-paying position the low rate has significant ongoing benefits to the ultimate cash generation of our company.
So of course, your next question is how many jobs T-Mobile is creating with this additional money?
Actually, on the same morning that Carter was explaining how much money T-Mobile’s about to save on its tax, the company announced a $1.5 billion stock buy-back program. Stock repurchases return money to investors, as well as boosting a company’s earnings-per-share – often a metric by which executive pay is calculated. Cash used for stock buy-backs is also money that cannot be re-invested in infrastructure, R&D, or any other measures that would demonstrably benefit customers or employees.
User’s reaction about this news:
Well, who’s going to pay for the military and border patrol upgrades, or the roads, or the administration itself, if companies, in aggregate, get to stop paying taxes? Say the corporate tax rate on profit drops from 40% to 20%, that means in general you’re going to need all those companies to expand their headcount by four times that much because payroll taxes aren’t going to make up 100% of that difference with a 1 to 1 ratio of savings to payroll. But if companies get to keep more of their profit, then what’s the incentive for executives to go and give that money away to employees? Really it’s backwards. Profit taxes should be higher, that would incentivize companies to want to pay fewer taxes by reducing profit margins, and they can do that by hiring more people. For as well as the Republicans can manipulate the less educated among us, they really can’t figure out how capitalism works.