There’s some tax bods who actually know their stuff who read here. And so, what’s the opinion?
Jeb Bush has in his tax proposal said two things.
1) Abolition of capital allowances: all investments get fully expensed in the first year.
So, the way I read that you buy $ squillion worth of machinery for the factory, machinery that will last 30 years, and $squillion is a cost in this first year to deduct from revenues to lead to taxable profits.
OK, interesting but that should only affect the timing of tax bills (ie, delay them) rather than anything else. True, a highly profitable and swiftly expanding business will pay no profits tax until it stops expanding, but perhaps that’s no bad thing.
2) Eliminates the tax deductibility of interest. Now, the plan says this is necessary as part of 1) because allowing deductibility would be a double benefit to a corporation or business. And that’s where I’m mystified. I can’t see the double benefit. And more, ending the deductibility seems to me to be a wrenching change. Leasing gets hit pretty hard, real state development is pretty much all debt funded isn’t it?
Further, if interest paid is not deductible then it shouldn’t be taxed at the recipient end either. But they’ll tax it at 20%.
Now, I don’t actually know enough here to work it out. But that looks like a huge change to me. And it’s also a change that no one seems to be talking about. So, would any of you tax bods care to explain to me why it’s nothing much, something huge, what the effects are?
Sure, in theory whether business is funded by debt or equity is a wash. But in reality?