Tax law is boosting chemical industry investment in the U.S.

Wow, that was fast. Congress’s historic tax reform bill, the ‘Tax Cuts and Jobs Act’ (H.R. 1) took effect earlier this month, and companies are already announcing plans for new U.S. investments made possible in part by the new law.

On Monday, ExxonMobil shared the news that the company plans to invest $50 billion over the next five years to expand its business in the United States. Darren Woods, Chairman and CEO, pointed to “recent changes to the U.S. corporate tax rate coupled with smarter regulation” as contributing factors in the decision. The capital is on top of the $20 billion over 10 years that ExxonMobil is investing in major chemical, refining, and lubricants projects in the Gulf Coast region.

These are quality investments for our shareholders that are made even better by tax reform.”

–Darren Woods, ExxonMobil Chairman and CEO

The positive effects of tax reform are showing up in corporate earnings announcements. Ecolab expects to see a tax benefit in Q4 2017, and beginning in 2018, the new law could benefit earnings by ten cents per share. Covestro has said that its tax bill will drop from 28% to 24% in 2017 and another one or two percentage points in 2018. And Royal Dutch Shell plc foresees positive economic impacts that are likely to benefit the company’s U.S. operations.

Some companies are using the new law to reinvest in their workers. For example, Honeywell is increasing its 401(k) match: “This is a sustained, annual benefit that will provide a more secure retirement for our employees,” said Darius Adamczyk, Honeywell President and CEO.

There’s a compelling argument for investing in major projects today – a lower tax rate on profits generated from those assets, and the five-year window of full deductibility of CAPEX.”

–Joseph Chang, ICIS News

The final tax reform legislation included a number of provisions long sought by ACC, including a significantly lower corporate rate effective in 2018, a transition to a competitive territorial system, retention of the R&D tax credit and ‘last in, first out’ (LIFO) accounting methods, and a bifurcated rate for repatriated earnings – one with a significantly lower rate for earnings reinvested in plants and equipment than for cash/cash equivalents. These reforms will support a vibrant and competitive U.S. chemical industry and manufacturing sector for the long term.

The final assessment of any policy change often comes down to a question straight from the business world: Does it have tangible, measurable results? With tax reform, seeing is believing.

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