Mon December 18, 2017

By Bill Carteaux, President & CEO, Plastics Industry Association

In D.C., discussions on the tax bill can quickly turn to politics, messaging, process, and winners and losers, whether it applies to an industry, region, or tax bracket. But engage with a manufacturer about the tax bill, and the conversation consistently turns to specific provisions that promote domestic manufacturing and economic activity. For many industries, the expensing provisions are the central issue to consistent business growth and planning, new innovations and jobs.

Whether you’re a medical equipment supplier, bottler, or car manufacturer – all of these businesses (and their customers and employees) benefit from cutting-edge equipment that keeps them competitive. This is especially true for companies in the plastics industry which are predominately small businesses, including many private companies that drive plastics manufacturing and recycling innovation.

In simplest terms, the expensing reforms allow businesses to immediately expense their capital investments. If a dairy cooperative buys a $1 million plastic blow molder system to make milk jugs, that expense can be deducted in its entirety that year. The incentive and benefit of expensing is broad: the equipment manufacturer sees a boost in its production lines and sales, and the buyer gets new, efficient equipment and the capability to immediately deduct its expenditure.

Currently, companies are required to depreciate their investments over several years based upon the theory that investments (like the blow molder for milk jugs) tend to decline in value over time. For small businesses, these depreciation schedules are complex and costly in terms of accounting and budgeting, but also fail to align with the realities of equipment utilization. Equipment life-cycles vary and new innovations are introduced regularly. Businesses should have the flexibility to replace equipment based on their needs, and not according to an accounting formula.

Expensing provisions in both the House and Senate bills would benefit the investment planning, equipment purchasing, and research activities of all businesses, and these changes will contribute to a growing workforce. The lower corporate tax rates outlined in the reforms have an overwhelming impact on business operations – particularly in terms of solidifying confidence and stability for planning and investment. The expensing provision is necessary for sound tax treatment of major equipment purchases. Finally, the preservation of the research and development (R&D) tax credit will spur innovation in manufacturing and make our industries more competitive globally.

While the domestic plastic industry is vibrant, global threats and changes are real. The need for innovation and efficiencies is constant. European Union-based companies are pushing the plastics envelope in developing “smart” equipment systems that are integrated into a company’s computing systems, and they are making advances in the manufacturing of new polymers that are environmentally friendly.

Our domestic industry needs to keep pace with these developments. New, advanced equipment innovation and design is the key to our industry’s long-term growth – and the fulfillment of our customer’s expectations.

The underlying benefits of immediate expensing are too great to ignore. The uncertainty of how expensing would be treated over the years – at times facing annual extensions – has been problematic for making sound purchasing decisions.

In 2018, manufacturing decisions should not be driven by accounting teams and external consultants calculating depreciation schedules and out-year tax deductions; rather, decisions to buy new equipment should be based upon the needs of a business, their operations, and the demands of their customers. The reforms will deliver the certainty we need.

Bill Carteaux is a 20-year veteran of the plastics manufacturing industry and the current president and CEO of the Plastics Industry Association (PLASTICS).

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