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Eliminating the CIT deduction: valuation implications for middle market enterprises

Most discussions about changing the CIT deduction are coupled with the notion of being “revenue neutral,” whereby other parts of the tax code would be adjusted so that total taxes paid would be roughly the same as under the current system. However, “revenue neutral” is not the same as “impact neutral” in terms of equity valuation or the impact it would have on economic growth in the middle market.

Populating the corporate value equation with observable market data, RGL Forensics has quantified the impact on the equity valuations of individual companies assuming the loss of the CIT deduction caused by resulting changes in the cost of capital and growth. The research study is based on a sample of 2014/2015 data available for 835 public companies, which was tested and extrapolated across the middle market based on the definition of “Middle Market Enterprises” by the National Center for the Middle Market.

Learn more about the projected impact by industry by downloading the full research study available from RGL Forensics and ACG.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

*Effective December 2018, RGL Forensics joined Baker Tilly US, LLP. This article was published while we were RGL Forensics. The author(s) or team member(s) quoted from RGL are now employees of Baker Tilly.

Matthew R. Morris
Principal, CFA, CLP
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