5 Reasons New Tax Laws had Less Impact on Healthcare Business Valuation

Published by Becker’s Hospital Review

Ever since the Tax Cuts and Jobs Act (“Tax Act”) became law on December 22, 2017, the valuation community has been trying to understand its impact on business appraisal.  At the time of passage, most valuation professionals agreed the provisions in the Tax Act would have a directionally upward impact on company value. Some experts believed the law would further fan the flames of a 10-year “bull” market in stocks; others viewed the law with more modest expectations.  Time will ultimately reveal the long-term impact of the Tax Act; however, some insights may be obtained as we conclude 2018.

As a reminder, key provisions of the law that are positive for valuation include the following:

  • Lower corporate tax rate1
  • Tax depreciation advantage for small businesses2
  • Tax depreciation advantage for large businesses3

Alternatively, key provisions of the law that partially offset the law’s benefits include:

  • Caps on deductibility of interest expense4
  • Changes to tax carryforward and carryback rules5

While most agree the Tax Act increased company value (all else equal), other dynamics seem to be at play which have muted its full benefit in 2018.  The 21.1% increase of the S&P 500 index in 2017 may be partially attributable to the anticipated Tax Act; however, it is difficult to fully ascribe these gains to the Tax Act given large uncertainty surrounding the new laws even up to its passage in late December 2017.   Since the new provisions became law, the performance of S&P 500 index has been surprisingly flat. Other dynamics the market seems to weighing include the following:

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