When all this produces growth at rates of 4 and 5 percent on a regular basis, then this nation will be experiencing the prosperity that would allow us to outrun our debt, our entitlement obligations and much more

Corporate leaders say Trump tax cut should lead to record business investment this year

By —— Bio and Archives--May 18, 2018

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This is one of the major benefits we tried to tell the rest of the world would come from the tax cut. It was hard to get the message across when most of the media’s coverage was about a) the politics of the tax cut; and b) the tired old who-wins-and-who-loses approach to assessing policy.

The truth is nobody loses when you unleash private-sector capital. Democrats screamed that only “the rich” would benefit, and too many companies tried to impress the left by paying employee bonuses and so forth. It’s fine to pay those bonuses if you want to, but it was never going to educate those who refuse to understand.


But for those who are genuinely interested in understanding the real implications of tax policy, this might help:

U.S. companies could plow more of the money saved from sweeping tax cuts into business investment later this year, perhaps even surpassing a jump in first-quarter capital expenditure that was the highest in almost seven years, strategists and analysts said.

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., May 14, 2018. REUTERS/Lucas Jackson – RC1161F49D30
Higher spending on technology, equipment and facilities could ease worries that S&P 500 companies have reached a peak in the profit growth investors are counting on to extend the nine-year bull market in equities.

The increased spending in the first quarter follows significant cuts in corporate taxes approved late last year by the Republican-led Congress. Companies have also been returning the tax cut windfall to shareholders via share buybacks and increased dividends at amounts never seen before, highlighted by Apple’s $23.5 billion repurchase in the first quarter.

With data in from 94 percent of S&P 500 companies, first-quarter capital expenditures total $159 billion, up more than 21 percent from a year ago and on track to be the highest year-over-year growth since the third quarter of 2011, according to S&P Dow Jones Indices data.

“These numbers are high, and I would expect higher numbers in capex this year. It takes a little bit longer for companies to plan and to execute” capital expenditure decisions, said Howard Silverblatt, senior index analyst at S&P Dow Jones.

That has the potential to underpin revenue gains well into next year, strategists said. Moreover, additional spending could extend the growth cycle for earnings if it results in increased sales and operating efficiencies.

Companies are investing the freed-up capital where it best serves their growth and profit goals. Many who have no immediate need for capital investments are buying back stock from shareholders who can then turn around and invest that capital in companies who do have such needs.

This is exactly that the tax cut was designed to do. It frees up capital to invest in things that hold the promise for sustainable long-term prosperity in the private sector. It’s not “the rich” who benefit so much as the productive. Those who are willing to seek opportunities and do well with them will benefit in an environment like this, because there is capital available to fund their efforts and to produce a reward for them.

When that same capital is sucked up by the government, you’re not rewarding the rich, the productive or the poor. You’re rewarding the political. And it was political people who were most upset about the tax cut, precisely because it takes their play money away and gives it to people who can actually invest it in something productive.

Nicely done, business sector. Keep it up. When all this produces growth at rates of 4 and 5 percent on a regular basis, then this nation will be experiencing the prosperity that would allow us to outrun our debt, our entitlement obligations and much more. And this is where it starts.


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Dan Calabrese -- Bio and Archives | Comments

Dan Calabrese’s column is distributed by HermanCain.com, which can be found at HermanCain

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