What will you find in your Christmas stocking? 

It has been hailed as a Christmas Present for the American people. Bloomberg News wrote, “If passed, the “Tax Cuts and Jobs Act” would bring about some of the most substantial changes to the U.S. tax system since 1986.” The headlines run the gamut with some predicting doom and others forecasting an economic boom. However, most people just want to know how it will impact them.

  1. How will my personal taxes be affected?
  2. Will my business or that of my employer benefit?
  3. What will change in my community or city where I reside?
  4. How will the U.S. economy react to the new legislation?

While I am not prepared or qualified to answer all these questions specifically, I would like to respond with some comments and observations (I realize that the subject of taxes may be the only topic more boring than Lease Finance).

First of all, a business friendly Congress has the power to grow the economy with certain incentives for investment and expansion. One such provision is the Section 179 Legislation, as described in a recent article in Forbes Business, small business "Section 179" expensing is increased from $500K to $1 million. Also, 50 percent "bonus depreciation" is increased to 100 percent. It is also important to note that a capital lease can qualify for this tax benefit

Secondly, whatever the final product, people and businesses react to tax policy by situating themselves to avoid higher taxes. This activity is commonly gauged by dynamic scoring. For example, when a large tax was passed on the purchase of luxury yachts in the 80’s, the demand for them tanked. The Section 179 Legislation and other provisions has the potential to also change behavior.  

Finally, risk takers, investors and business owners like certainty. There is evidence that investors in the stock market like the prospects of The Tax Reform Package, as reported in U.S. News. After Senate passage of the bill in early December, the writer stated, “Many financial advisors, academics and economists say that the market, despite its record-setting ways, is nowhere close to being a frothy bubble. Instead, they describe an economy that remains strong and has plenty of room for more gains should the tax reform package become reality.” 

Let us all hope that we aren’t left with the proverbial lump of coal in our Christmas Stockings.

Merry Christmas, Happy Hanukkah, and Best Wishes in the New Year,

Kevin F. Clune, CLFP
Clune & Company LC