Many economists are skeptical that savings from the Republican tax plan will transform business decisions. Manufacturers welcome tax savings, but provisions designed to help them may expire before they can do any good.
ORO GRANDE, Calif. — Republicans have pitched their tax plan as an economic godsend that will offer deliverance from middling growth and set off a torrent of investment, hiring and raises. But at a quarry here in Southern California’s high desert, the outcome does not look so straightforward.
The pit of rock belongs to CalPortland, which mines limestone to create the cement that goes into stadiums and hotels. (The company also has several locations in Washington state, including the Seattle Cement Terminal and Seattle Ready Mix Plant.) The company would hardly object to keeping a chunk of profits that currently goes to the government. But the extra cash probably would not be enough for CalPortland to expand immediately in ways requiring serious hiring.
“Ten percent extra profit would be good,” said Steven Regis, a senior vice president for corporate services at the company. “But it’s not going to fund big projects.”
Like executives across the country, Regis has spent the last few weeks scouring the House and Senate tax proposals for signs of hope for his industry — and new sources of pain.
Many economists are skeptical that the tax savings will transform business decisions. And when President Donald Trump’s chief economic adviser recently asked a room of chief executives whether lower taxes would prompt them to invest more, only a few hands shot up.
Regis’ deliberations suggest why those executives — especially at manufacturers like CalPortland, the companies at the core of Trump’s vision for the economy — may have muted expectations.
Many welcome tax savings, but each industry and company will make different calculations about whether and how to spend that money. Much will depend on what customers and suppliers do and, of course, on the vicissitudes of the U.S. economy.
Most Read Nation & World Stories
- Several powerful earthquakes strike off the shore of Canada
- Trump administration eyes defining transgender out of existence
- Did you see that painting hanging behind Trump during ‘60 Minutes’ interview? Here's what we know about it
- 4 Americans among 5 dead in Costa Rica rafting accident
- Leaked video shows Khashoggi 'body double' after killing VIEW
“You always have competing interests for that cash,” Regis said. “Do you pay dividends? Do you buy new equipment? Do you buy out competitors? Do you add employees? Do you pay employees better?”
Many CalPortland drivers are unionized, and he expects a tax cut to produce demands for the wage increases that Republican sponsors said the tax plan would generate. Regis said he would like to oblige but was not sure which of the company’s priorities would win out.
Regis, who says he “leans to the right,” said he believed in the economic logic of cutting corporate taxes to 20 percent from 35 percent. Yet he is worried about how the Republicans in Congress are pushing through their tax bills, quickly and without the support of Democrats. Can a business count on the provisions of a law that the other side might try to rewrite in a couple of years?
“I think it’s bad news for the country to have one side make the rules,” Regis said. “It was bad when they passed the health-care bill; it’s bad now if they pass the tax bill.”
The uncertainty is particularly frustrating for a company like CalPortland, since its biggest spending commitments often have to be made far in advance. And the tax bills have fleeting components, like the idea of allowing companies to take the entire cost of equipment off their taxable income the year they start using it. In the House bill, that provision expires after five years. In the Senate version, it phases out gradually after five years and ends by the 10th year, 2027.
In Washington, five or 10 years may be a lifetime. But CalPortland probably could not even get the permits for a new cement plant in that amount of time. The company, Regis noted, is not popping out iPhones — it is blowing up rocks in the desert.
Ryan Montgomery, whose father and grandfather worked here in Oro Grande, spends most days scooping limestone into a dump truck. “It may get a little bumpy,” he says, before breaching a wall of boulders that shakes his cab, perched a healthy 30 feet from the ground.
His loader — a sunflower-yellow Caterpillar vehicle with an arm attached to an oversize shovel — costs $2.3 million. Replacing a pair of tires is a $50,000 expense, and the transmission goes for $130,000. The company leased the vehicle from a bank.
Quicker expensing for tax purposes would not prompt CalPortland to make an upfront purchase of Montgomery’s loader.
“Getting the money back faster definitely helps, but that’s big money, and that big investment means we have to be able to have the cash or the financing available,” Regis said. The company is slowly replenishing its bank account after six years — from 2008-2014, a period bridging a housing bust and a fragile economy — in which it did not turn a profit.
On the rise once more, CalPortland is making new bets on its future that will take years to pan out. The company is planning, for example, to buy new equipment that will wash clay and dust off rocks so they can eventually be turned into concrete and asphalt.
But regulatory permits for such a project, covering everything from land use to pollution, can take four years to materialize. Then, CalPortland has to buy and build the washers and crushers, which can take another year or so. By then, the House bill’s five-year window for immediate expensing will have closed.
“It takes businesses time to plan and time to envision and time to start building,” said Scott Greenberg, a senior analyst at the Tax Foundation, an independent group that typically finds tax cuts an economic boon. The foundation expects that making fast expensing permanent will stimulate growth. “When the provision expires,” Greenberg said, “the positive effects in the first years would go away.”
Another sticking point for CalPortland is that the tax bills tie the amount of interest that companies can deduct to a measure of their earnings. For now, the threshold is high enough that it would not affect the company’s borrowing — it finances much of its spending with debt because the tools it needs are so costly.
But Regis said he is worried that introducing any limit opens the door to further restrictions down the line, or even bigger changes, especially if the Republicans lose control of Congress.
That is not to say the company won’t make some shorter-term use of the extra cash — most likely to buy concrete trucks to augment and eventually replace an older fleet in the Northwest. That would also mean hiring two dozen new drivers, but they would stay on in the long term only if orders remain strong.