Hidden Pothole for Stock Market May Lie in Republican Tax Reform Plan
Tax reform may not be the unalloyed good that stock market investors seem to think it is.
Or so say tax policy wonks in Washington. In a complicated argument, they contend that a provision in the Republican tax plan that’s designed to speed up economic growth paradoxically could put downward pressure on equity prices.
The relevant proposal would allow companies to immediately write off for tax purposes all their spending on machinery, computers and other capital investments. The aim: To coax firms into making more productivity-boosting outlays. It would be a big change from the current tax code, which requires that some items be written off gradually over time.
The shift to so-called full expensing would effectively enhance the value of companies with big future capital spending plans relative to those that already sunk a lot into their business. And that in turn could prompt investors to reassess how much they’re willing to pay to own shares of established companies listed on the stock exchanges, experts in the tax field say.
