According to NPES President Thayer Long, “The inclusion of the immediate full write-off (Expensing) of capital investment as a central feature in tax reform legislation is truly gratifying evidence that our message of its importance to investment, economic growth and jobs is getting through to legislators.”  NPES is a US trade association representing more than 650 companies that manufacture and distribute equipment, software and supplies used across the workflow of printing, publishing, and converting processes

Expensing of short-lived capital investments, including print technologies, is included in H.R. 1 – Tax Cuts and Jobs Act, which the House Ways & Means Committee approved last week, and is also included in the Senate’s version of the bill that Senate Finance Committee Chairman Orrin Hatch (R-UT) released at the end of last week. Additionally, both the House and Senate bills would increase Section 179 expensing, but in differing amounts over differing periods of time. The full House is expected to vote on its legislation this week as the Senate Finance Committee begins its deliberations.

Both versions of the legislation flesh out the tax reform framework released by President Trump and congressional Republican leaders in September, and are designed to overhaul America’s Tax Code for the first time since 1986. Each would reform both individual and business taxes by lowering tax rates on wages and investment, broadening the tax base, simplifying the tax code, and moving the United States from a worldwide to a territorial tax system, more like the rest of the industrialized world. The landmark legislation aims to spur a more vibrant economy, greater prosperity, and more jobs. President Trump’s and congressional Republicans’ goal is to enact it into law by year-end.

However, NPES’ Long points out that, “the timing of the corporate cut is a significant difference between the House and Senate plans, and has the potential to kickstart the economy in 2018, as more investment is front-loaded next year.” Specifically, the Senate plan delays reducing the corporate tax rate from 35 percent to 20 percent until 2019, rather than 2018 as under the House plan.

As explained in the Tax Foundation’s November 10, 2017 Report:

• Due to the interaction of a delayed corporate rate cut and the immediate implementation of temporary full expensing the Senate version of the Tax Cuts and Jobs Act accelerates capital investment, generating a faster dynamic response than the House version of the plan.
• The growth of GDP under the Senate plan…is not linear. Investment incentive is increased by the one-year delay on a corporate rate cut. The first-year corporate tax rate of 35 percent (the same under current law) means that businesses would have a larger tax savings from expensing than under a 20 percent rate. Firms would move quickly to take advantage of the savings, resulting in front-loaded economic activity.

With this dynamic a real possibility, Long emphasized that, “Print technology suppliers and their customers should be prepared to take full advantage of the potential for huge tax savings in 2018.”

100 Percent Immediate Expensing for Print Technologies
Both the House and Senate versions of the Tax Cuts and Jobs Act embrace one of NPES’ top government affairs priorities, specifically, full and immediate 100 percent expensing of capital investment in print technologies – machinery and software, but only for five years. This would apply to technology acquired and placed in service after September 27, 2017 and before January 1, 2023. While not as powerful an economic stimulus as it would be if made permanent, as NPES has and continues to advocate, the provision is nonetheless an important step in the right direction, and will provide a significant boost to investment, particularly if extended or made permanent in the future.

Expansion of Section 179 “Small Business” Expensing
Both the House and Senate versions of the Tax Cuts and Jobs Act would also increase so-called Section 179 “small business” expensing, but in differing amounts and lengths of time. Specifically, the House bill would raise the investment limit to $5 million (now $500 thousand), and increase the phase-out amount to $20 million (now $2 million), again for five years, for tax years beginning after 2017 through tax years beginning before 2023. In contrast, the Senate bill would raise the investment amount to only $1 million, and increase the phase-out threshold to $2.5 million, but these increased levels would appear to be permanent. The Senate bill also shortens the depreciation of real property to 25 years.

According to the recent National Association of Manufacturers’ Manufacturers’ Outlook Survey of 14,000 of its members, 64% said that meaningful tax reform would cause them to invest in new equipment.

NPES will continue to closely monitor the legislative process, provide more analysis, and call upon its members to weigh in when and where needed. For more information contact NPES Vice President, Government Affairs Mark Nuzzaco at 703-264-7235 or [email protected]