What Corporate Tax Cuts Could Mean for the US Healthcare Industry
The tax reform bill’s progress
The $1.5 trillion Republican tax reform bill was passed in the House of Representative on November 16, 2017. On December 2, 2017, the US Senate approved its version of the tax reform bill on a 51–49 vote.
The two bills have some key differences that need to be reconciled. It is expected that the final version of the bill could be rolled out by mid-December 2017. The bill could be passed by the US House and Senate by before Christmas for President Trump’s signature.
For the brief discussion on the impact of the tax bill on the US economy, please read Are Tax Reforms Good for the US Economy?
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Corporate tax rate cut
The tax reform bills passed by the US House and Senate reduce the corporate tax rate from 35% to 20%. The corporate tax cuts are expected to benefit most of the companies in the healthcare space, as they are some of the high taxpaying firms in the market.
According to Credit Suisse, healthcare services companies currently pay corporate taxes as high as 30.2%. However, the US pharmaceuticals and medtech companies with sales outside the United States could experience reduced benefits in comparison.
The chart above shows the one-day price returns in the first week of December of six major healthcare ETFs—the Health Care Select Sector SPDR ETF (XLV), the iShares US Medical Devices ETF (IHI), the iShares US Healthcare Providers ETF (IHF), the SPDR S&P Health Care Services ETF (XHS), the iShares US Pharmaceuticals ETF (IHE), and the VanEck Vectors Biotech ETF (BBH).
On December 4, 2017, the Health Care Select Sector SPDR ETF (XLV) opened higher than its closing price on December 1, 2017, prior to the passage of the Senate tax bill on December 2. However, XLV closed trading on the day ~1.2% lower than its previous day’s closing price.
Among the major US healthcare companies, Pfizer (PFE), Johnson & Johnson (JNJ), Medtronic (MDT), and Biogen (BIIB) saw their stock prices fall 0.79%, 0.73%, ~1.9%, and 0.61%, respectively, on December 4, 2017.
Any further tax bill–related events are expected to have a significant impact on the stock price movement of healthcare ETFs and the companies in the US healthcare industry.