Companies that spend effectively to develop property, plant, equipment and even their brands could get a big boost from a tax break proposed by the Trump Administration and Republicans on the House Ways and Means Committee.
The break, a little noted part of corporate tax reform efforts, would allow certain companies to deduct from their U.S. taxable income the full amount they spend to develop a capital asset in the year they make the investment, and thereby improve their cash flow and eventual profitability. Currently, only a portion of the such capital investment is allowed to be deducted each year over the projected useful life of the asset.
But under the proposals, companies that meet certain criteria could deduct the whole amount of their investment the very first year it's spent.
Trump and House Republicans are hoping the break will lead companies to increase their capital investment in the U.S., and thereby boost the economy.
Capital spending fell during the recession and while it has recovered, it has yet to exceed pre-recession levels, notes Charles Mulford, an accounting professor who oversees the Financial Analysis Lab at the Georgia Institute of Technology.
So both the House and Trump want to get that spending back up.
Allowing the immediate expensing of capex certainly could help U.S. companies that must spend heavily on capital investment to grow. That need is reflected in a high ratio of capex to revenues. And those will benefit the most earn high returns from that spending. As the accompanying table shows, they currently include copper miner Southern Copper, pharmaceutical maker Regeneron (REGN) truckers Old Dominion (ODFL) and Hunt (JBHT) and chemical company Westlake Chemical (WLK) .