Companies weigh effects of federal tax reform

Companies weigh effects of federal tax reform

Most industries expect to benefit from biggest changes since 1986

March 2, 2018

by Tim Loughran

Article image
Bruce Whitehurst, president and CEO of the Virginia Bankers
Association. Photo by Rick DeBerry

 

Virginia business executives hope recently enacted federal tax reforms will spark a surge in economic activity and higher profits.

Called the nation’s biggest reform in the U.S. federal tax code since 1986, the Tax Cuts and Jobs Act passed by the Congress and signed by President Trump in December, will change the way American companies and individuals are taxed on this year’s income.

There remain seven individual income tax brackets under the new law, but each bracket has a lower tax rate. The nominal federal tax rate on companies, both public and private, was cut from 35 to 21 percent.

“It should have a very positive impact,” says Bruce Whitehurst, president and CEO of the Virginia Bankers Association. He says VBA members are relieved that language in an early version of the bill eliminating a deduction on interest paid on bank loans was not in the final legislation.

Virginia manufacturers, meanwhile, are buoyed by new rules allowing companies to claim immediate full deductions for new capital expenditures rather than having to wait a number of years.

“We’re still trying to understand the full implications” of the law, says Brett Vassey, president and CEO of the Virginia Manufacturers Association. “The overall feedback we’re getting is not only positive, but extremely positive … I think it will unleash an absolute avalanche of capital investments. We’re already seeing it.”

Hospitals and health-care companies, however, are not so enthusiastic about the tax law.

Lower corporate tax rates will help for-profit health-care entities, but executives fear elimination of the Affordable Care Act’s “individual mandate” will aggravate the rising level of uncompensated care they provide to uninsured Virginians.

“In terms of hard numbers, there’s still a ‘to-be-determined’ feeling out there,” says Julian Walker, head of communications for the Virginia Hospital and Healthcare Association. “It will impact each system differently, some positively; some may see negative effects.”

While the new individual rates are scheduled to expire in 2025, the law’s supporters say a future Congress can continue them. The corporate tax cuts, on the other hand, are permanent. The tax law is expected to add about $1.5 billion to the national debt by 2028. The law’s supporters predict increased economic activity resulting from the tax cuts ultimately will lower the national debt.

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