The new tax law overhauls America’s Tax Code for the first time since 1986, reforming both individual and business taxes by lowering tax rates on wages and investment, broadening the tax base, and moving the United States from a worldwide to a territorial tax system.
More specifically, the TC&JA includes the immediate full write-off (Expensing) of capital investment for the next five years. “This is truly gratifying evidence that our message of the economic importance of state-of-the-art technology and the growth of the nation’s capital stock got through to legislators and the President,” says NPES vice president of government affairs Mark Nuzzaco.
NPES was supportive of other pro-growth business tax provisions that ended up in the final legislation as well (see below), but focused its primary advocacy on securing immediate, full expensing of capital investment. Achieving this objective for at least the next five years is a major legislative victory for NPES’ members, as well as their colleagues and customers, in the printing industry.
Below is an overview of key business tax provisions in the new law:
- Capital Investment: Allows immediate, full expensing of short-lived capital investment, such as machinery and equipment (now new or used) for five years, between September 28, 2017 and December 31, 2022, then phases out the provision by 20% annually over the next five years. It also raises the Section 179 “small business” expensing cap to $1 million, with a phaseout starting at $2.5 million.
- Corporate Tax Rate: Reduces corporate (C Corp) tax rate from 35% down to 21% starting in 2018.
- Treatment of “Pass-Through” Income: Reduces the top individual rate from 39.6 down to 37% which is how pass-throughs are taxed, including many small businesses. But, this reduction is subject to some rather complicated limitations.
- Corporate Alternative Minimum Tax (AMT): Repealed.
- Interest Deductibility: Caps net interest deduction at 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30% of earnings before interest and taxes (EBIT) thereafter.
- Research & Development Tax Credit: Preserved.
- Advertising Expense Deduction: Preserved.
- Territorial Tax System: Adopts a territorial tax system with anti-abuse rules and a base erosion anti-abuse tax (BEAT).
- Cash Accounting: Increases eligibility to businesses with up to $25 million in income.
- Deemed Repatriation: Adopts deemed repatriation of currently deferred foreign profits at rate of 15.5% for liquid assets, and 8% for illiquid assets.
- Estate Tax: Doubles the Estate, Gift and Generation Skipping Tax exemptions from $5.6 million to $11.2 million per individual, and $22.4 million per couple, effective 2018. While not full repeal, the increased exemptions facilitate the inter-generational transfer of the assets of a significant number of small businesses.
According to NPES’s Nuzzaco, “Tax reform in general, and expensing in particular, didn’t just come about this year, rather it is the product of years of educating policy makers and legislators about the importance of investment in technology and the economic growth it spawns.” In that vein, he especially lauded the work of the Tax Foundation, a Washington think tank, for being a major source of the data and analysis that provided the economic and tax policy foundation for tax reform, which was heavily relied upon by the manufacturing sector, Congress and the Administration.
"But, notwithstanding the power and importance of the TC&JA, it leaves work still to be done,” says Nuzzaco. “Five years of immediate, full expensing is great and will deliver a huge boost to the US manufacturing sector in the short-term, but for the economic benefits of more and better paying jobs to be long-lasting expensing must be made permanent,” he emphasizes. “Permanent, steady and predictable capital investment is where the full power of expensing lies."
To that end, NPES is launching the “Make Expensing Permanent Coalition” even before the ink is dry on the TC&JA. “This is not to find fault with the expensing provision in the new tax law, it is simply to recognize that its benefits cannot be allowed to lapse,” announces NPES government affairs chairman Greg Salzman, president, Aleyant Systems, Wheaton, IL.
The Association plans to conduct a webinar for its members on the new tax law early in the new year. Details will be announced after January 1, 2018.