With Congress looking to overhaul the U.S. tax code, a decrease of the corporate tax rate to 20% from 35% is among the more notable provisions. U.S.-based asset managers paid on average, an effective tax rate of 27.1% in 2016, with a slightly higher median of 28.4%. While a 43% decrease in the tax rate will likely be directly realized in asset managers tax bills with other provisions negatively impacting other areas of the corporate tax code, it will certainly be a boon for the industry and their forward valuations. Since 2014, the average effective tax rate for the 10 largest U.S. companies was 27.4%.
Managers that conduct more of their business in the U.S. will benefit more should the provisions pass as part of the new tax code. T. Rowe Price, Eaton Vance (EV) and Federated Investors (FII) are among managers with more than 95% of their income sourced domestically, and will see more tax savings per dollar than firms like BlackRock (BLK) and Invesco (IVZ), which do more international business.