Perverse transitional incentive under the Senate tax bill

The Senate tax bill provides increased expensing immediately (i.e., for 2018), but delays the corporate rate cut for a year (until 2019). This has interesting transition effects, and I don't mean "interesting" as a compliment.

Suppose a company has the opportunity to spend $100 in 2018, in order to earn $90 in 2019. So it faces a $10 loss before tax. But if it can expense the outlay at a 35 percent rate, and include the receipt at a 20 percent rate, then after-tax it's out only $65 in 2018, and retains $72 in 2019. Voila, profitable after-tax investment.

This is a standard problem about tax rate changes with expensing, accelerated depreciation, etc. (And it's why David Bradford came to favor a consumption tax with income tax accounting and interest on basis.) But it's accentuated here by enacting a corporate rate cut more than a year in advance, while providing increased expensing immediately. Not a great idea, I would say.

This time around, I'm sure the villain is inadvertence, not malevolence, but it is an example of how ill-advised it can be to rush out massive tax reform bills with inadequate feedback and vetting, and with ad hoc decisions being made on the fly to finesse revenue targets.