New Tax Law Likely to Increase U.S. Capital Investment, Implementation Challenges Ahead

by Sean Morrison

According to a recent survey, 94% of business tax executives think the new tax law will lead their business to increase capital investment in the U.S.


In January 2018, Miller & Chevalier and the National Foreign Trade Council surveyed business tax executives, including vice presidents, directors, and managers of tax, at a broad cross section of U.S.- and foreign-based multinational companies about the impact of the Tax Cuts and Jobs Act of 2017 (or Public Law 115-97, if you prefer) on their businesses. Almost all respondents (97 percent) believe that the new law will make U.S. businesses more competitive.

One likely reason tax executives believe the new law will increase U.S. competitiveness is that most—almost 60 percent—say it will lower their business’s taxes. By contrast, less than 14 percent say the law will lead to higher taxes for their business.

There has been much debate since January on whether these tax savings will have a greater impact on workers or shareholders. Speaker of the House Paul Ryan has touted recently announced employee bonuses and lower jobless claims as evidence that the new tax law is benefiting workers. Senator Ron Wyden, ranking member of the U.S. Senate Committee on Finance, by contrast declared in February that the new law has resulted in “record-breaking corporate stock buybacks.”

But the survey results suggest the biggest direct impact of the new law will be on U.S. capital investment. An overwhelming 94 percent of respondents say the new law will lead their business to increase capital investment in the United States. This might not be surprising, as the new tax law combines mandatory repatriation of an estimated $2.6 trillion in deferred foreign earnings with the temporary provision of 100 percent bonus depreciation for certain capital investments through 2022, which then phases out from 2023 through 2026. These provisions together provide a potent incentive for businesses to make new capital investments in the United States over the next few years.

As for implementation of the new law, significant challenges and opportunities lie ahead. Over 60 percent of respondents say they intend to seek technical corrections. Perhaps this too is unsurprising as most recent major tax changes have been followed by some technical corrections. But the lack of support from Democrats in passing the new tax law makes a technical corrections bill unlikely before the midterm elections in November.

An even greater number of respondents, almost 74 percent, say they plan to seek regulatory or other administrative guidance regarding the new law, without which the promise of a simpler and more efficient Internal Revenue Code could prove elusive. Recognizing this need, the Department of the Treasury (Treasury) and the Internal Revenue Service’s updated priority guidance plan identified forthcoming guidance on fundamental aspects of the new tax law, such as computational, definitional, and anti-avoidance guidance for the deduction for qualified business income under the new §199A. Recent changes to Treasury’s regulatory authority could give tax executives new opportunities for input on this forthcoming guidance, but these changes could also lead to delays.

Treasury and the Office of Management and Budget published a memorandum of agreement (MOA) in April announcing that the Office of Information and Regulatory Affairs (OIRA) will now review some of Treasury’s tax regulatory actions. The MOA provides that OIRA may expedite its review to ensure timely implementation of the new tax law. Nevertheless, Treasury will now be required to provide OIRA with a detailed explanation of the need for a regulatory action and an analysis of the costs and benefits of the action. For certain regulatory actions, Treasury will also be required to provide an analysis of the costs and benefits of reasonable alternatives. Tax executives should be able to take advantage of these new requirements when providing comments on proposed guidance. However, this new layer of review may also frustrate tax executives if OIRA ends up delaying or reversing helpful guidance.

In sum, as the results of the survey bear out, the Tax Cuts and Jobs Act of 2017 is poised to increase the competitiveness of U.S. businesses and U.S. capital investment. And although tax executives may be disappointed in seeking technical corrections before the midterm elections, they should expect significant opportunities to comment on administrative guidance implementing the new tax law. The challenge will be getting much-needed guidance on the new law in a timely manner.

Sean Morrison is an Associate at Miller & Chevalier.