Tax Cuts and Jobs Act #2

I was a little surprised by AT&T and Comcast announcing they would pay most of their employees a $1,000 bonus after The Tax Cuts And Jobs Act becomes law. My surprise was only because such bonuses are rare. It's easy to expect that the money will be offset by lower future taxes. Indeed, considering only the amount of money, these bonuses will be easily covered by lower 2018 taxes only. Then I realized there is another reason for the bonuses being even more affordable.

AT&T says about 200,000 front line and non-executive employees will get the bonus. Comcast says more than 100,000 front line and non-executive employees will get the bonus. That means $200 million dollars for AT&T and $100 million dollars for Comcast. That's cash. The effect on the companies' financial statements will be driven by GAAP accounting, which isn't only the cash.

AT&T's 2016 provision for income tax was $6,479 million. Comcast's was $5,308 million. (Numbers from Morningstar.) Assuming the same pre-tax earnings in 2018 and a tax rate of 21% instead of 35%, the provisions for income tax will be $3,887 million for AT&T and $3,185 million for Comcast. The reduction for income taxes --  $2,592 million for AT&T and $2,123 million for Comcast -- dwarfs the amount of bonuses for both.

Moreover, the new lower tax rate will induce a big one-year earnings boost. It will reduce the amount of deferred tax liability on their balance sheets. AT&T's was $60,128 million ($60 billion) at the end of 2016. Comcast's was $34,854 million ($35 billion) at the end of 2016. Assume the same amounts at the end of 2017 and modify them for a tax rate of 21% instead of 35%. Those deferred tax liabilities fall to about $36 billion for AT&T and $21 billion for Comcast. Since a liability reduction increases income, it implies $24 billion extra income for AT&T and $14 billion extra income for Comcast. Although non-recurring, they are big numbers compared to AT&T's 2016 net income of $13 billion and Comcast's 2016 net income of $12 billion. AT&T's income nearly triples. Comcast's income more than doubles.

I wondered if anybody else thought of this. MarketWatch did.