Let’s talk the economy. As a business owner, now is a great time to trade in the Ford F150 pick up trucks our maintenance engineers use that we purchased at the end of Trump 1.0 when he signed the 100% expensing law. (That law allows businesses to expense 100% of a capital equipment and investments/purchases in one year rather than having to depreciate the trucks over say, 5 years.)
With the new tax bill coming that will allow 100% expensing again, we’re already talking to our local Ford dealer, Middleton Ford about trading in our oldest trucks, which have already been expensed, this year while there is still some warranty period remaining for the newbuyer of those pre-owned trucks to use, thereby getting us more value on the trade-in. Plus, Middleton Ford offered to pay us for the unused warranty period!
Combine that with the employee discount that is now being offered by Ford, it’s kind of like getting all new trucks for free! Why? because we get a great value on the trade-in, which cuts the cost of the new trucks, combined with the employee pricing, reducing the price further, giving us a great price. Then add in the 100% expensing of the full retail value of the trucks, which is worth about 44% of the price in real tax savings, it’s like getting new trucks for free!
Yea, you got that right, it’s like they’re free! So why not take advantage? I’m sure once the new tax bill passes, other businesses will wake up to this benefit and do the same, investing in new vehicles, new plant and equipment, and new capital investments. Even investors in real estate will benefit. And why not? If you consider that a business that invests, let’s say, $10 million in a plant or equipment can deduct 100% of that and save somewhere between 25% to 44% of the cost in taxes, it really means that the cost of that investment is that same percent lower due to the tax savings.
And that’s the purpose of the tax bill. Now throw in the tariffs discouraging imports, and businesses should be looking at making these new investments this year and next, manufacturing here (or attention Walmart shoppers, buy from American manufacturers!)
So while there is uncertainty right now, just as with Trump 1.0, I expect that business investment towards the second half of the year and into next year, will boost GDP.
Yes, right now the uncertainty is hurting economic activity as businesses cut back on expenditures and hiring until the tariff battle settles down. So too during Reagan’s first term was there the same economic uncertainty. During Reagan’s first year or two, it took the administration time to get the tax bill passed and for inflation to come down, but then America enjoyed 25 years of unprecedented economic growth, which when combined with
Newt Gingrich’s spending cuts forced on Bill Clinton, led to a budget surplus. That combination of huge economic activity from Reagan with spending cuts and paying off the national debt to zero (!) led to amazing economic prosperity.
But what about the negative GDP that the government reported this week; 0.3%* down? And housing starts are down too. And by the way, inflation is down also around the Fed’s target too.
The ten year treasury bond is also down (in terms of its rate). And lumber is down, steel is down, and oil is down. Good. Because that is exactly the excuse the Fed needs to lower interest rates at its May meeting. If the Fed doesn’t lower short term rates in May, it will be a clear sign that Powell is trying to trainwreck Trump’s economic policies. Powell has no excuse now. Rates need to come down. I also speculate that when the EU’s central bank rate is 2.25%, or half the U.S. treasury rate, that a lot of foreign capital may flow into treasuries (since the investors can earn twice the interest rate as in Europe), and if that happens, then the treasury rates should also come down as more capital flows in.
Another interesting statistic we should consider is that the Commerce Department (why do we even have such a department?) for some reason deducts imports from GDP (while adding exports). This means that since the U.S. has run a trade deficit with all foreign nations in total, that the net amount is a negative from the Commerce Dept’s perspective, thereby lowering theofficial GDP. But what happens when imports slow to a trickle (like with China)? That would mean that next quarter’s GDP report should report lower exports but also much lower imports, so the trade deficit will be much lower, and therefore, the net negative impact on GDP will also be lower, thereby boosting GDP, right?
So the GDP should jump up quickly as we go farther into the year, with lower imports, more capital investment right here, and more private sector spending once the tariff uncertainty dissipates. And lower government spending, which is a big negative to real GDP (even though some liberal economists pretend that government spending is a positive to GDP). Get it? Plus with lower interest rates, more tariff revenue to the government, the government can reduce the budget deficit and borrow less, also putting less pressure on issuing new bonds, which would also put downward pressure on interest rates. So while it’s a rough ride now, the outlook looks really good for later this year and into next (if Powell doesn’t try to wreck things).
Now Trump has to clean up the mess and all the damage to the house (our nation). Trump is already well on his way with that too. Powell’s role during the party was to keep the printing presses rolling in the basement of the house and keep handing out more credit cards to the partiers. Now along comes Trump who tells him to stop, and Powell is crying like a teenager having her credit card cut off. He wants to keep the parting going because all the partiers loved him. They worshipped him. He doesn’t want to be the bad guy and cut off the fun. They’ll stop saying nice things about him.
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Review, Middleton Times Tribune, and Milwaukee Journal Sentinel and a dozen other Wisconsin papers) and previously wrote a column for InBusiness magazine and the Middleton Times Tribune for five years each. T. Wall holds a degree from the UW in economics and an M.S. in real estate analysis and valuation and his full time career is as a real estate developer. Disclaimer: The opinions of the writer are not necessarily those of this publication or the left!
