WILL TAX LAW CHANGES INCREASE CAPITAL INVESTMENT?
Reduced corporate tax rates, changes in the accounting treatment of capital expenses, and other provisions of the tax bill signed into law in December were partly intended to accelerate investment by U.S. businesses. More than three out of five middle market executives say they intend to increase capital spending plans as a result. Most of these changes will be modest, but a handful of companies (6%) say they will accelerate or increase capital spending to a significant degree.
Bigger companies are more likely to be aware of tax-law changes and more likely to change capex—67% compared to 61% for the middle market as a whole. Part of this difference is due to simple awareness: Just 57% of lower middle market companies say they are aware of tax-law effects on capital spending, compared to 67% among companies with revenues between $100 million and $1 billion. Further, the Center has seen in previous studies* that larger companies are generally more knowledgeable about and responsive to the cost of capital than smaller firms.
Information technology will be the biggest beneficiary of accelerated capital investment. For every dollar executives plan to put into real estate, they will put $1.50 into plant and equipment, and $2.00 into IT. Bigger middle market companies expect to invest more aggressively across the board.
*NCMM and the Milken Institute, Access to Capital: How Small and Mid-Sized Businesses Are Funding Their Futures, 2015