While the GOP's federal tax reform legislation awaits President Trump's expected signature, an area manufacturer and the statewide chamber lauded the potential impact of the bill on business.
An area banker, though, said it was wait-and-see for the impact on the banking industry, businesses and the spending and savings habits of consumers.
Both the U.S. Senate and House approved the “The Tax Cuts and Jobs Act of 2017” this week, which reports are calling the first significant change to the federal tax code since 1986.
The bill makes small reductions to income tax rates for most individual tax brackets, significantly reduces the income tax rate for corporations and eliminates the corporate alternative minimum tax, according to Concannon-Miller & Co., a Certified Public Accountant and accounting firm in Hanover Township, Northampton County. The legislation also provides a large new tax deduction for owners of pass-through entities and significantly increases individual alternative minimum taxes and estate tax exemptions, the firm said in a news release. Furthermore, the legislation also makes major changes related to the taxation of foreign income.
“This pro-growth reform legislation will help to reverse decades of missed economic growth opportunity and improve our country’s competitive edge,” Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry in Harrisburg, said in a statement. “The uncompetitive nature of the country’s federal tax structure has had repercussions for every state, but particularly in Pennsylvania.”
Pennsylvania has the highest effective corporate net income tax rate in the nation, Barr said.
INCENTIVE TO UPGRADE
The bill has a direct impact on manufacturers both small and large, particularly those looking to buy new equipment.
“One of the areas as a manufacturer we are looking to move forward with is the acquisition of new equipment,” said George Reitz, president of American Millwork & Cabinetry of Emmaus. “That’s a strategic way of being more competitive. Older equipment requires more downtime. We’ve been very active since the bill was finalized.”
In anticipation of the tax changes, Reitz said, his company already bought a vehicle for the company’s installers and another one for project managers. It also plans to buy a panel saw, an edge bander and accompanying software in anticipation of his company’s growth in the new year. The change in bonus depreciation in the new law spurred this move, he added.
One of the key changes affecting businesses in the new bill is the doubling of bonus depreciation to 100 percent and expansion of qualified assets to include used assets. These assets have to be acquired and placed into service after Sept. 27 and before Jan. 1, 2023, according to Concannon-Miller.
“That just incentivizes a company like ours to make those moves,” Reitz said.
Reitz sees his business as improving, largely tied to optimism on changes to the tax bill.
“Theoretically, we are 75 percent booked for the upcoming year,” Reitz said. “People are looking to do the improvements that were languishing.”
The company also hired an operations manager, as well as its ninth engineer and its sixth project manager, all in anticipation of the growth expected to come from the changes to the tax bill.
“We see it in our invitations to bid, we are actually narrowing the area where we used to go to be closer to the plant, because the market is stronger,” Reitz said.
Meanwhile, the impact on the banking industry could be more uncertain and may not be clearly determined for months.
“It’s another great experiment to try to jump-start the economy,” said Gary Olson, president and CEO of ESSA Bank & Trust in Stroudsburg. “The market is obviously doing well, but the Fed continues to raise rates. There is a lot of liquidity in the system already, and we are adding more liquidity. Is the additional liquidity in the system enough to spur demand and drive GDP [gross domestic product] over 3 percent? In my mind, it will take six to nine months to see any change.”
It would take businesspeople a number of months to figure that out before businesses make decisions, Olson said.
That would also mean it could take that amount of time for consumers to decide they will be spending or saving more money.
“We don’t know yet,” Olson said.
Concannon-Miller provided some details on key changes in the new tax law that will affect businesses:
• Replacement of graduated corporate tax rates ranging from 15 to 35 percent with a flat corporate rate of 21 percent.
• Repeal of the 20 percent corporate alternative minimum tax.
• New 20 percent qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships – through 2025.
• New tax credit for employer-paid family and medical leave – through 2019.
• New limitations on excessive employee compensation.
• New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation.
• Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phase-out threshold to $2.5 million.