National Association of Government Contractors

President Donald J. Trump
Trump tax reform will benefit many government contractors
Tax Reform Benefits Many Government Contractors

President Trump signed the most consequential tax legislation in three decades on Friday, the first major legislative victory for his administration.

The major components of the Tax Cuts and Jobs Act of 2017 are a significant reduction in the corporate tax rate from 35 percent to 21 percent, plus a change for the U.S. to a territorial tax system from a global model.

Both the rate cut and tax system model change figure to bode well for federal contractors and especially the large, publicly traded government IT and professional services firms, which will be among the beneficiaries of a rate cut.

Many firms within the contracting industry, encouraged by the progress of the bill through the legislature, have noted that it's passage and corporate tax cuts would give them more cash to make investments amid wide anticipation for higher defense spending, which would give them a double-billing of good news.

While, observers of the contracting landscape believe that the tax bill will stimulate a growing merger and acquisitions trend within the industry -- or result in increased shareholder returns. Others are hopeful that the effect of the legislation will promote growth and expansion.

Other aspects of the legislation provide additional benefits for contracting firms, doing business overseas.

In addition, many prime defense hardware makers derive large portions of their revenue overseas through foreign military sales, which helps bring down their effective tax rates. Lockheed Martin for example had an effective tax rate of 23.2 percent last year, while General Dynamics reported 27.6 percent and Northrop Grumman stated 29.5 percent.

Many government IT and services contractors by comparison derive at least 90 percent of sales from U.S. federal agencies. But, many within the contracting community, anticipate they will benefit from the tax reform bill.

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