The Effects of Corporate Tax Rate cut at Disney World (No political talk allowed)

[No Name]

This thread is like asking me to post a picture of half an egg without the color yellow or white.

 

[DisAl]

It's worth noting the tax bill hasn't been approved yet. In fact, there's actually two different bills in play - one in the House and one in the Senate. For that reason, it may be a bit premature to discuss how Disney would react.

Personally, I don't foresee any tax changes leading to any visible or tangible changes in the parks.

I think it was Mark Twain that said "No mans life, liberty, or property is safe when Congress is in session." Sadly that seems to be true no matter who is in power.

 

[EricsBiscuit]

I'd expect more people at the parks. There's a good bit of cutting so people will have more disposable income for things like Disney trips.

 

[ThemeParkJunkee]

Based on a poll of business CEOs, some will add staff, some will improve infrastructure, but most will increase dividends and stock buy backs. I would put DIS in the latter group if history is any indicator.

 

[DisneyDodo]

It's hard to predict how any single company would react to a decrease in corporate tax rate, but in theory, the majority of a company's savings would be kept/paid out as dividends, while there should be some small level of increased investment, as the lower tax rate makes it easier to invest in slightly riskier propositions.

 

[MaryJaneP]

"....much more will be spent in the domestic parks...." from OP

While this is undoubtedly true, not one cent more will be spent by the corporation as a result of the tax bill and any increase in spend will be by the "guests" buying overpriced generic merch.

 

[GiveMeTheMusic]

Anyone who thinks Disney would reinvest tax savings into theme park capex is living in Fantasyland.

 

[AEfx]

I don't think it will affect anything from our perspective. A survey of CEO's showed that paying down debt and stock buybacks were FAR above any other priorities for the "saved" funds.

 

[Rumrunner]

I would like to start this thread by saying NO political comments are allowed, all that should be discussed is how you think more money kept in Disney's hands will effect operations at Disney World. This is not important just because Disney will have more money in the bank, but also Bob Iger said this, "We pay a Federal tax rate that is above 30% and pay $3 billion in Federal taxes year. The U.S. is not competitive with the rest of the world." While the corporate tax cut rate has not gone into effect, after last night's vote it is surely going to be passed. Remember no political talk! Just discuss how this while positively effect the company to reinvest more. I for one believe much more will be spent in the domestic parks which is desperately needed. Thank you all to who reply to this thread appropriately! I'm a 16 year old boy, if I can discuss a topic appropriately, I truly hope you can too!

Happy Holidays!

-Davis

There will be a wide variety of uses for the money gained from tax reduction. Each company will react differently depending on corporate needs. I believe that 99% of them will use the money more efficiently than the government uses that money. I see positives and few if any negatives.

 

[davis_unoxx]

There will be a wide variety of uses for the money gained from tax reduction. Each company will react differently depending on corporate needs. I believe that 99% of them will use the money more efficiently than the government uses that money. I see positives and few if any negatives.

Agreed!

 

[Tom P.]

I will start with a disclosure that I am fine with lowering the corporate income tax rates. Repatriation of profits is a viable argument. That said...expecting it to directly correlate into capital investments, hiring or increased employee pay or benefits...is unlikely.

Corporate Income Taxes are paid post expenses. Meaning, if the company makes 1 million, but spends 999,999 in operating expenses, licensing, capital expenditures (read...new facilities/equipment), etc...they only pay taxes on $1.

Granted, I'm grossly oversimplifying this. But, it is merely to clearly and plainly illustrate the point. The reason a company doesn't just operate without a profit margin, be they private or public, is pressure from investors. Investors only make their monies through realization of profit. The immediate impact of lowering the corporate tax rates will be putting money into their pockets. The net result would bolster stock performance and dividends.

Now, that sounds terrible (to some) because...rich fat cats, and all that. But, it really isn't. A large percentage of investments are held through funds that are relied upon by millions upon millions of people, not just the "top one percent". Retirement funds, for example. These are called Institutional Holdings. Disney's DIS stock (NASDAQ), after a quick check, is ~63% held by these sort of investors. The dividends of these stocks are then distributed amongst their clients, in the case of investment groups and banks, and/or to stabilize cash reserves, in the case of insurance companies.

The largest institutional holder for DIS, for example, is Vanguard Group. Vanguard specializes in all sorts of financial planning for individuals and institutions, one of which, for example, being Duke University's Retirement Fund through Vanguards Target Retirement Fund. Another large holder of DIS stock is State Farm Mutual Auto Insurance Group.

These are just two examples, amongst the ~1200 Institutional Holders of DIS stock, but I think it illustrates enough for me to point out that it isn't all just going to the "rich"...Not by a long shot.

So, that is the immediate economic impact. Bolstering of the stock market.

Now, from there, one of a two things can happen.

1) The company decides to continue the higher dividend payouts, and leave operating expenses as is.
2) The company decides to keep their dividend percentages the same as before, and increase operating expenses

Honestly, #1 is far more likely.

But, that doesn't mean that the further impact, repatriation of funds, doesn't have an effect on the real wages of employees or future capital investments. It just, very likely, won't be direct.

I'll explain how.

Currently companies, once they reach a certain size, spend a lot of time and money keeping revenues isolated away from the US, using subsidiaries, etc. They do this to avoid the higher US taxes. So, you can't simply set up a company in, say, Ireland, and then funnel money through it. That would be tax evasion, that would be illegal. But, you can set up some sort of business unit that produces something of value, for the consumer or the company, and then redirect income through it.

This employes people there, and monies are kept in local banks and investment firms, etc...which is then reinvested (by those local banks) in the local economy there, and the employee salaries spent to bolster that local economy.

And, that is what they do.

The incentive to do this, though, lay strictly to please the investor. A savings in tax can lead to a increase in dividends and stock value. And, to a CEO, that is their primary goal. To create value for the investors. Note...not the consumers. The investors.

So, the argument is...if US based corporations are presented with the option to pay the same (or lower) rate of tax without having to jump through international means, they will, potentially, keep the funds in the US, and expand those business units here.

If they do so, this leads to an indirect impact on the US economy as a whole. The increased dividends go to US based investment and financial institutions and insurance companies. These funds have a direct impact on US local markets, through loans, insurance rates, etc. And, these, have a direct, but distributed, impact on the US based economy. And, the wages, if paid to US employees, are spent largely within our economy, or deposited in local banks which, in turn, invest locally. When the funds are kept overseas, they do not.

As I said at the beginning...not direct. But, indirect.

Critics are not wrong to say this is "trickle down"...that is exactly, when grossly oversimplified, what it is. The question is...does it work?

I would be interested to know if anyone -- Republican or Democrat, liberal or conservative -- currently in Congress arguing about the tax bill could, without any advance preparation, offer the same level of simple, coherent explanation as you have just provided on a Disney fan forum? I seriously doubt it.

 

[jt04]

More companies expanding will lead to more jobs and higher wages and more people able to afford vacations including to WDW which will lead to better profits and more investment in the parks and resorts which will lead to more guest visits. Etc.

And possibly the return of the Lights of Winter.

 

[RSoxNo1]

More companies expanding will lead to more jobs and higher wages and more people able to afford vacations including to WDW which will lead to better profits and more investment in the parks and resorts which will lead to more guest visits. Etc.

And possibly the return of the Lights of Winter.

If I was ever looking for proof that trickle down economics was largely exaggerated/fabricated, all I needed was an endorsement from JT.

 

[jt04]

If I was ever looking for proof that trickle down economics was largely exaggerated/fabricated, all I needed was an endorsement from JT.

Clearly redistribution does not work especially over time. JFK said a rising tide lifts all boats. Perhaps you have heard of him.

 

[jt04]

Actually in Apple's situation they very well may bring back a bunch of money into the US and so will other companies keeping large stashes of cash off shore. Basically Trump is hoping that happens because that will produce a tax wind fall for the government. There are trillions of dollars off shore that is purposely not brought back into the US. Many companies will then send out a big dividends which will be taxed again by the government. What Trump is then hoping that dividend money gets spent immediately which will produce more taxes and business transactions. Stock buy backs are very possible which in theory will help the stock market to continue up for a the next few years again pushing up feral tax receipts on traders. Going forwards the tax rate will be lower to a point where US companies aren't that likely to leave large sums of money overseas so problem fixed?

To make it sound nice the government will say the money will be spent on hiring and expansion. No it won't. You can't just hire people because you have more money, you have to have a reason to hire more people.

A booming economy will provide the reason. Already we are seeing much better growth in the private sector. Tax cuts will accelerate the pace.

This isn't complicated.

 

[rael ramone]

I strongly suspect that whatever *extra* cash $DIS ends up from the change in tax laws will not find it's way to the parks in any way, shape, or form.

With the potential deal to buy Fox Media assets (and supposedly being done with holders of $FOXA stock being given $DIS stock) I suspect there will be significant acceleration of buybacks....

 

[jt04]

I strongly suspect that whatever *extra* cash $DIS ends up from the change in tax laws will not find it's way to the parks in any way, shape, or form.

With the potential deal to buy Fox Media assets (and supposedly being done with holders of $FOXA stock being given $DIS stock) I suspect there will be significant acceleration of buybacks....

So I guess all the investment we are seeing on a global scale in Disney parks is all an illusion then.

Or perhaps Disney can do acquisitions, buy backs, pay down debt, and invest capital.

Sort of an 'all of the above' response. Because logic.