Income Taxes

The following is a reconciliation of income taxes at the statutory rate of 35% to the provision for income taxes as shown in AFG’s Statement of Earnings (dollars in millions):



	Three months ended June 30,										Six months ended June 30,
	2017					2016					2017					2016
	Amount			% of EBT		Amount			% of EBT		Amount			% of EBT		Amount			% of EBT
Earnings before income taxes (“EBT”)	$	205				$	136				$	428				$	292

Income taxes at statutory rate	$	72		35	%	$	47		35	%	$	150		35	%	$	102		35	%
Effect of:
Stock-based compensation	(7		)	(3	%)	—			—	%	(13		)	(3	%)	—			—	%
Tax exempt interest	(6		)	(3	%)	(6		)	(4	%)	(12		)	(3	%)	(13		)	(4	%)
Dividends received deduction	(2		)	(1	%)	(2		)	(1	%)	(4		)	(1	%)	(4		)	(1	%)
Employee Stock Ownership Plan dividends paid deduction	(2		)	(1	%)	—			—	%	(2		)	—	%	(1		)	—	%
Change in valuation allowance	2			1	%	32			24	%	—			—	%	33			11	%
Subsidiaries not in AFG’s tax return	—			—	%	1			1	%	—			—	%	2			1	%
Other	3			1	%	1			(1	%)	9			2	%	6			1	%
Provision for income taxes as shown in the statement of earnings	$	60		29	%	$	73		54	%	$	128		30	%	$	125		43	%

The favorable impact of stock-based compensation on AFG’s effective tax rate in the second quarter and first six months of 2017 reflects the high volume of employee stock option exercises during that period and the increase in the market price of AFG Common Stock. Excluding the $65 million charge in the second quarter of 2016 related to the exit of certain lines of business within Neon, AFG’s Lloyd’s-based insurer, AFG’s effective tax rate for the second quarter and six months ended June 30, 2016, was 36% and 35%, respectively.

During the first six months of 2017, there were no material changes to AFG’s liability for uncertain tax positions.