10-08-2016, 06:53 PM
(10-05-2016, 01:41 PM)fredtoast Wrote: But you claimed that low interest rates were the reason that we did not see the increase in spending from tax cuts.
If the ROI is not there for a company to make out re-investing their own profits then why would they be borrowing money to re-invest?
Because most companies HAVE to borrow to invest, they don't have the cash to cover it. Taxes have a lot to do with how much an investment is actually worth to you, and borrowing costs have a lot to do BOTH with how much the investment is worth AND how big of an investment you can afford (if at all).
I'm not going to going into the technical details, but in corporate finance there is what is known as the "debt tax shield", such that optimal capital structures have some amount of debt. And a lot has to do with taxes, and why I might borrow to finance an investment even if I have the cash (and might not do if I can't borrow to finance).
And both rates play heavily in the investment decision, so it's not always easy to determine how big of an impact a cut in rates or taxes would have. Obviously if tax rates were 100% [private] investment would essentially be zero
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