Tax reform is being sold as an overhaul designed to create jobs. It’s in the name, even: the Tax Cuts and Jobs Act of 2017.
But business executives say the bill will drive them to invest in automation, the type that will allow them to cut jobs in the future.
The issue at hand is a provision of the bill that allows full and immediate depreciation of capital spending. This change will allow most capital expenditures, such as investments in machines and building upgrades, to be written off against profits in the first year.
The change, set to last for five years, is far more generous to corporations than current law, which allows businesses to write off the costs of new equipment gradually over years.
While the provision is expected to provide substantial benefit to the commercial real estate and oil industry, the provision could also spur a wave of investment in automation in the manufacturing industry.
Firms that supply automated machines and other assembly line robots, including Rockwell Automation Inc and Emerson Electric Co, have in recent weeks celebrated the tax reform provision, expecting increased revenue as clients order more products.
John Stroup, the chief executive of Belden, discussed the capital expenditure provision with J.P. Morgan vice president Ashwin Kesireddy earlier this month during an investor meeting.
“I would expect there to be an acceleration of capital investment in certain categories if, in fact, the tax plan is passed with the provisions you just mentioned,” said Stroup. “There’s already a number of factors why people are investing in automation as an example. This would just be another one where they could expense the investment and get the added benefit of the tax shield, which is substantial,” he added.