Income Tax Provision. We calculate our provision for federal, state and international income taxes based on current tax law. U.S. federal tax reform was enacted on December 22, 2017, and has several key provisions impacting the accounting for and reporting of income taxes. The most significant provision reduced the U.S. corporate statutory tax rate from 35% to 21% beginning on January 1, 2018. We recorded the effect of the change in tax law in the fourth quarter of 2017.

The provision for income taxes and effective tax rate in 2017 included a $119 unfavorable impact from the change in tax law. The impact was due primarily to the remeasurement of our U.S. federal deferred tax assets and liabilities at the tax rate expected to apply when the temporary differences are realized/settled (remeasured at a rate of 21% versus 35% for the majority of our deferred tax assets and liabilities).

The U.S. Treasury Department and the Internal Revenue Service (IRS) are expected to issue further guidance related to tax reform that could impact our provision for income taxes in future periods. As a result, we believe it is reasonably possible there may be changes to provisional interpretations and

assumptions we made in our application of tax reform provisions. We do not expect the impact of any changes to have a material impact on our results of operations, financial condition or cash flows.



Year Ended December 31	2019		2018			2017
Current:
U.S. federal	$	471	$	587		$	656
State	36		48			31
International	119		95			77
Total current	626		730			764
Deferred:
U.S. federal	49		(37		)	215
State	1		8			7
International	42		26			60
Adjustment for enacted change in U.S. tax law	—		—			119
Total deferred	92		(3		)	401
Provision for income taxes, net	$	718	$	727		$	1,165
Net income tax payments	$	572	$	532		$	617

The reported tax provision differs from the amounts paid because some income and expense items are recognized in different time periods for financial reporting than for income tax purposes. State and local income taxes allocable to U.S. government contracts are included in operating costs and expenses in the Consolidated Statement of Earnings and, therefore, are not included in the provision above.



Year Ended December 31	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
State tax on commercial operations, net of federal benefits	0.7		1.1		0.6
Impact of international operations	0.2		0.6		(4.5	)
Domestic production deduction	—		—		(1.5	)
Foreign derived intangible income	(1.4	)	(1.2	)	—
Equity-based compensation	(1.1	)	(1.1	)	(2.6	)
Domestic tax credits	(2.0	)	(1.1	)	(0.8	)
Contract close-outs	—		(0.5	)	—
Adoption impact of enacted change in U.S. tax law	—		—		2.9
Other, net	(0.3	)	(1.0	)	(0.5	)
Effective income tax rate	17.1	%	17.8	%	28.6	%

Net Deferred Tax Liability. The tax effects of temporary differences between reported earnings and taxable income consisted of the following:



December 31	2019			2018
Retirement benefits	$	1,097		$	1,055
Lease assets	418			—
Tax loss and credit carryforwards	323			393
Salaries and wages	167			160
Workers’ compensation	148			138
Other	367			351
Deferred assets	2,520			2,097
Valuation allowances	(291		)	(336		)
Net deferred assets	$	2,229		$	1,761

Intangible assets	$	(1,070	)	$	(1,061	)
Lease liabilities	(418		)	—
Contract accounting methods	(375		)	(530		)
Property, plant and equipment	(291		)	(265		)
Capital Construction Fund qualified ships	(164		)	(160		)
Other	(359		)	(284		)
Deferred liabilities	$	(2,677	)	$	(2,300	)
Net deferred tax liability	$	(448	)	$	(539	)

Our deferred tax assets and liabilities are included in other noncurrent assets and liabilities on the Consolidated Balance Sheet. Our net deferred tax liability consisted of the following:



December 31	2019			2018
Deferred tax asset	$	33		$	38
Deferred tax liability	(481		)	(577		)
Net deferred tax liability	$	(448	)	$	(539	)

We believe it is more likely than not that we will generate sufficient taxable income in future periods to realize our deferred tax assets, subject to the valuation allowances recognized.

Our deferred tax balance associated with our retirement benefits includes a deferred tax asset of $1.2 billion on December 31, 2019 and $1 billion on December 31, 2018, related to the amounts recorded in accumulated other comprehensive loss (AOCL) to recognize the funded status of our retirement plans. See Notes M and R for additional details.

One of our deferred tax liabilities results from our participation in the Capital Construction Fund (CCF), a program established by the U.S. government and administered by the Maritime Administration that supports the acquisition, construction, reconstruction or operation of U.S. flag merchant marine vessels. The program allows us to defer federal and state income taxes on earnings derived from eligible programs as long as the proceeds are deposited in the fund and withdrawals are used for qualified activities. We had U.S. government accounts receivable pledged (and thereby deposited) to the CCF of $340 and $483 on December 31, 2019 and 2018, respectively.

On December 31, 2019, we had net operating loss carryforwards of $989, substantially all of which are associated with jurisdictions that have an indefinite carryforward period. We had tax credit carryforwards of $68 that began to expire in 2020. Most of these carryforwards are subject to valuation allowances.

Tax Uncertainties. We participate in the IRS Compliance Assurance Process (CAP), a real-time audit of our consolidated federal corporate income tax return. The IRS has examined our consolidated federal income tax returns through 2017 and is currently reviewing our 2018 tax year.

For all periods open to examination by tax authorities, we periodically assess our liabilities and contingencies based on the latest available information. Where we believe there is more than a 50% chance that our tax position will not be sustained, we record our best estimate of the resulting tax liability, including interest, in the Consolidated Financial Statements. We include any interest or penalties incurred in connection with income taxes as part of income tax expense.

Based on all known facts and circumstances and current tax law, we believe the total amount of any unrecognized tax benefits on December 31, 2019, was not material to our results of operations, financial condition or cash flows. In addition, there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will vary significantly over the next 12 months, producing, individually or in the aggregate, a material effect on our results of operations, financial condition or cash flows.