By slashing corporate tax rates and giving an immediate 100 percent depreciation for capital investments, the big federal tax reform package could boost plastics equipment in this NPE year.
But it's still too early to gauge the full impact, according to machinery officials and some processors.
President Donald Trump signed the tax reform just three days before Christmas. Plastics machinery executives interviewed in the first few weeks of January said their U.S. customers are still trying to gauge the impact, as well as making lists to prioritize their most pressing capital machinery needs.
"It's still too early, and many companies are still trying to figure out the real tax saving before they will commit to new equipment investments," said Sonny Morneault, vice president of sales and marketing at Wittmann Battenfeld USA. But Morneault said customers are saying the tax reform will be a big contributing factor in equipment spending.
Machinery leaders contacted by Plastics News were bullish for 2018, but as the New Year dawned, they were sorting it all out.
"I do really think it's still kind of early, but certainly when I look at the details of it, I would think it makes common sense that this will certainly spur investment," Peter Gardner said Jan. 4. Gardner is vice president of sales and general manager of Niigata injection molding presses at DJK Global Group in Wood Dale, Ill.
Niigata and several other injection molding press suppliers are bumping up inventory in anticipation of a big year.
"We've increased our production plan for stock machines, machines we stock here in the U.S. for quick delivery to customers. We've increased that by 25 percent in anticipation of there being more demand for machinery because of the tax reform law," Gardner said. The machines are made in Japan.
Bill Duff, general manager of sales and marketing at Yizumi-HPM Corp., said the company has boosted inventory of its Chinese-made injection presses by about 30 percent at its headquarters in Iberia, Ohio.
"So we'll be hot, and we'll be carrying a much higher level of inventory for 2018 than we have in the previous two years," he said.
The tax reform lowers the corporate tax rate from 35 percent to 21 percent. It also includes a 20 percent deduction on taxable income for S corporations or LLCs — common in the plastics processing industry — known as "pass-through" companies because the income falls to the taxable income of the owners.
The 100 percent depreciation runs for five years, through 2022.
"The bonus depreciation means I get to expense 100 percent of the asset in the year it's placed into service," said Michael Devereaux, who coordinates the tax incentives program at Mueller Probst LC in St. Louis. He said it applies to new machinery and used equipment.
The write-off also applies to some other capital investments, such as physical improvements to a factory.
Combined, the tax cuts dramatically reduce the cost of capital. The 21 percent corporate tax increases the productive capacity of the economy and makes the United States a much more competitive place to manufacture, economists say.
It gives companies more money to spend on capital improvements, hiring and giving pay raises, as well as improving their profitability.
Another fuel source for growth this year: In a rare occurrence, major economics around the world are strong at the same time.
"The stock market is great. The volatility index is low, which is kind of a measure of confidence in the stock market by investors. It seems like all green lights ahead for our economy," said Gardner of Niigata.