More evidence the tax reform law is spurring massive business activity

Here's an observation that isn't even open to debate: If a business find itself with more capital on hand than it expected, it will use that capital in whatever way it believes will best support the company's pursuit of its goals. Every company has slightly different goals, of course, but most want to grow and all want to make a profit. Most have things they'd like to do in order to spur that growth or that profitability, and whether or not they can these things depends in large part on the availability of cash. When Congress passed, and President Trump signed, the tax cut in late December, every corporation in America found itself looking at the availability of significant capital it would not have otherwise had.

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Economists are expecting economic growth to accelerate in 2018

To be sure, these corporations earned this money. It's not as if politicians gave them a gift. They just committed a little less theft. The left didn't like this because they don't think corporations need or deserve any more money. And they're sure that if corporations have more money, they'll find some way to use it to screw the little guy (whatever that means). But with every week that goes by, we're learning more about what companies are actually going to do with the money. And it's no wonder economists are expecting economic growth to accelerate in 2018. Growth is driven by activity like this:

Specialty drugmaker Amicus Therapeutics Inc. has decided to spend as much as $200 million on a new production facility in the U.S. instead of Europe. Kimberly-Clark Inc.,maker of Kleenex tissues, is spending hundreds of millions of dollars to put new machinery in one of its U.S. factories, even as it closes others and cuts thousands of jobs. Aramark ,the catering and uniform giant, expects to save nearly $500 million on two recently completed acquisitions. The rapid adaptation goes well beyond the early announcements of $1,000 bonuses or minimum-wage increases for rank-and-file workers. And this is just the beginning. The U.S. Treasury and the Internal Revenue Service have offered guidance on just a few of the two dozen provisions in the law that will likely require formal regulations. Companies must start navigating complex rules imposing minimum taxes on foreign income, tax breaks for partnerships and other pass-through entities, faster deductions for capital spending and new limits on interest and operating-loss deductions. “We’re only 30 days into the tax reform process,” Lowell McAdam, chief executive of Verizon Communications Inc., told investors on Tuesday. “We’re all trying to understand the implications and what we can accelerate and how we can accelerate.”

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Along with announcing its repatriation of cash held overseas last week, Apple Inc. pledged to invest $30 billion in the U.S. that it had held abroad, despite having to pay $38 billion under a one-time tax on those accumulated foreign profits. Goodyear Tire & Rubber Co.now estimates it won’t pay cash taxes until 2025, because its existing credits will stretch out an additional five years when used to offset taxes at new, lower corporate rates. That the tax bill will have significant effects on corporate finances is certain, though the effects can vary widely by company. Already, analysts expect the legislation to provide a 7% to 8% boost in aggregate per-share profits for the companies in the S&P 500 this year, said Joseph LaVorgna, chief economist for the Americas at Natixis , an international financial-services arm of France’s Groupe BPCE banking firm.

As ignorant as Senator Warren and fellow Democrats are about business

It makes sense for companies to invest this money because, if the results are profitable as they hope, they will be able to keep far more of the profits than they did before the tax cut. It's a basic risk/reward proposition. If the reward is greater, the risk is more worth taking. We already covered in this space why, contrary to what Elizabeth Warren shrieks, it's a very good thing if companies use the tax savings on stock buybacks. But as ignorant as Senator Warren and fellow Democrats are about business, it's hard to believe they didn't understand that all kinds of activity like that mentioned above would be accelerated as a result of the tax cut. In fact, they were probably afraid all this would happen, since it would show that the private sector can drive economic growth faster than the government. Expect that to continue throughout the year. I would not be surprised if we see at least one quarter with growth above 4.0 percent, since it's already clear the business activity spurred by the tax cut is going to be much greater than most people anticipated. It's always the productive sector of the economy that drives growth and prosperity. And that's the private sector, where businesses produce, create and grow. The best government economic policy is one that gets out of the way and lets business do what it does - which for the first time in a long time, is finally what we see happening.

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