Managed services News
Economist Mark Zandi On Why Tax Cuts Are Not A 'Game-Changer,' Rising Deficits, And Why He Is Not A 'Fan' Of President Trump’s Economic Policies
Can you talk about the impact of the Tax Cuts and Jobs Act and the impact it has had on IT spending?
It hasn't had a large impact. I think it has helped buoy growth, and stronger growth helps support demand for all things including IT. I don't think it has been a problem, but maybe a small tailwind to the IT industry broadly. But it is not a game-changer. At least not so far. We haven’t noticed any substantive pickup in IT- related investment.
IT investment had been quite depressed throughout most of the economic expansion in part related to the recession itself. But also in part related to the fact that a lot of investment spending went into the energy sector to build out the fracking infrastructure. So IT sort of got less of the investable dollars during most of the expansion.
That is no longer the case. IT is getting its fair share. So that has been helpful. But the tax cut itself—the tax law itself—if it has had an impact it has really been a modest one on the margin.
What impact is digital transformation like Uber disrupting the taxi industry having on business investment in new game-changing, customer-facing solutions?
It is transformative. The IT sector is always obviously at the leading edge of change. It is always changing and evolving and kind of leads the way for the rest of the economy. It is key to driving innovation and the technological change necessary to support productivity gains and growth in our standard of living. It is by definition an industry of change. This time is no different. The technological backdrop is changing, shifting very rapidly. Most obviously and recently the advent of cloud computing and all the changes that is creating. People in this industry know better than anyone how challenging but also how much opportunity there is when things are changing as rapidly as they are. That will always be the case with the IT sector. It is on the vanguard of change.
Can you talk about the impact of the corporate tax cut from 35 percent to 21 percent and the pass-through deduction for businesses?
Obviously, it has been kind of a windfall particularly for C Corps. There, it has been a slam-dunk positive. The top marginal rate went from 35 percent to 21 percent. That cut went right to the bottom line. That was a very clear benefit to C Corps.
S Corps, it is less clear. It really depends on the industry—the profession, the way the S Corp. is set up. It is a lot more complicated. In fact, some of the rules around this are still being nailed down. So it is not quite clear exactly how much of a benefit it will be to S Corps.
My sense is net net it is a plus. But it is not the slam-dunk positive it is for C Corps. For them, it is an obvious benefit to their profitability.