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Old 12-24-2019, 05:07 PM
 
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Tax Reform Has Delivered for Employees
Two years later the data show that investment has increased, with wages and job participation rising.

https://www.wsj.com/articles/tax-ref...rs-11577045463

On the 2nd anniversary of the signing of the Tax Cut & Jobs Act, it is clear the law is delivering tangible results, and especially so to employees.

All mainstream economists agreed that tax cuts would jump-start the economy, as it was based on abundant peer-reviewed publications in academic economic journals examining how tax policy affects decision-making by both businesses and individuals.

On the corporate side, the tax cut reduced the cost of installing new plant and machinery by about 10%, suggesting that capital spending would jump by roughly the same amount. This would increase the amount of capital per employee and drive up both productivity and wages.

Architects of the TCJA forecasted that family incomes would increase by about $4,000 in three to five years, with blue-collar workers benefiting disproportionately.

Capital spending was 4.5% higher in 2018 than pre-TCJA blue-chip forecasts, and this trend continued in 2019. This extra capital improved productivity and wages and, as expected, did so especially for those in lower-paying jobs. The numbers are striking.
  • Over the past year, nominal wages for the lowest 10% of American workers jumped 7%.
  • The growth rate for those without a high-school diploma was 9%.
  • The median worker benefited as well, but much less so, helping to begin closing the income inequality gap.
  • And about that $4,000 forecast? Real disposable personal income per household has increased $6,000 since the tax cuts were passed.
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Old 12-24-2019, 05:19 PM
 
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I’d be curious how they’re calculating a 10 percent reduction in cost of capital expenditure. So for example, let’s say they’re looking at traditional 7 year MACRS property...M&E at your traditional manufacturer.

Yes, companies get 100% bonus depreciation, but it’s only at 21% deduction. Before it was 50% plus the normal MACRS amount...so closer to 65% cost recovery in year one...but at a higher 35% deduction. Tax depreciation is only a temporary timing difference that would be fully caught up in year 7. In year one, you only have a 35% difference in cost recovery at a 14% lower deduction rate...is that really cutting the cost by 10%? Unless there’s some other part of the tax reform I’m forgetting that effected capital assets. It’s also a one time “pull through” and it has sunset provisions and will start to fall off in the early 2020s.

In other words, for year one, $100 capital asset at 65% MACRS and at 35% rate is worth $23. $100 capital asset at 100% bonus but only at 21% deduction is only worth $21...plus the old depreciation system still had 35% more to unwind over the remaining 6 years.

But maybe it boosted capital spending for companies that aren’t sophisticated enough to do math? Or maybe they they just did it because they needed to because business conditions warranted it anyways?

Also, section 199 for domestic production was repealed. However, it was somewhat replaced with the FDII provisions.

Last edited by Thatsright19; 12-24-2019 at 05:40 PM..
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