Companies Are Sounding Ebullient on Trump’s Tax Law. Tariffs Could Be a Killer.

MGM Resorts was able to adjust its tax forecast for 2025 to a refund. (Bridget Bennett/Bloomberg)

Earnings season is giving companies a chance to spell out how Republicans’ recently enacted tax policy will affect their cash flow. Early indications are that investors should expect a flood of cash as companies take advantage of tax breaks, but at least some companies are warning that the trade war could take the wind out of their sails.

The tax legislation, signed into law by President Donald Trump on July 4, makes permanent a trio of corporate tax breaks. Those include 100% “bonus depreciation” that lets companies immediately deduct the cost of some investments rather than stretch out the deductions over time. The law also lets companies immediately deduct some research and development and interest expenses.

Estimates of the cost of those provisions vary, but the bonus depreciation provision alone was expected to cost the Treasury more than $350 billion in tax revenue over the coming decade, according to Congress’s Joint Committee on Taxation, with the majority of those costs front-loaded in the law’s opening years.

The changes don’t flow straight into company earnings, because of how the benefits are calculated under generally accepted accounting principles, but do they do give companies extra cash flow to send to shareholders or reinvest.

Trump administration officials are counting on the law to drive growth amid concerns that the economy and the jobs market are slowing. The White House Council of Economic Advisers has estimated that the law, combined with Trump’s other policies, will cause gross-domestic product to grow 4% annually, after inflation, through 2028 and 2% after that, a far more optimistic projection than many economists.

Central to that premise is that companies use the tax breaks to make billions of dollars in capital expenditures on factories and equipment that drive production in the country and to spend on hiring.

During earnings calls in the past two weeks, some company executives have lauded the tax changes. Comcast Chief Financial Officer Jason Armstrong said the law’s infrastructure provisions will provide the company a $1 billion annual cash benefit on average over the next several years. Bombardier CEO Eric Martel called the bonus depreciation provision “great news for our entire industry.” MGM Resorts International CFO Jonathan Halkyard said the tax law allowed it to adjust its tax forecast for 2025 from a $100 million tax liability to a $100 million tax refund.

Major tech firms should be beneficiaries, too. Morgan Stanley estimated that the law’s depreciation and research and development provisions should increase free cash flow at Alphabet’s Google, Microsoft, Apple , Amazon.com , and Meta Platforms by more than $70 billion combined in 2025 and more than $30 billion in 2026. The effect becomes more muted over time, said the analysts, who called the law the “Big Beautiful Tech Tax Bill.”

That said, some companies have also warned that Trump’s tariff push could end up meaningfully diminishing what they’re able to do with that cash. Executives for power management company Eaton Corp. on its earnings call on Tuesday said they weren’t changing their free cash flow forecast for the year, despite the tax law, in part because of expected tariff payments.

Executives at engine maker Cummins on Tuesday gave a similar warning after an analyst suggested that the law could give the company options to increase buybacks or deploy free cash flow elsewhere.

“If the taxes are the beautiful part, then the tariffs are definitely not, right?” said Cummins Chief Financial Officer Mark Smith. “And the challenge is that the tariff costs have created great uncertainty.”

Write to Joe Light at joe.light@barrons.com