Professor Aswath Damodaran (New York University Stern School of Business) has posted a series of data updates on his blog, “Musings on Markets.” The posts include “Taxing Questions on Value,” “The Currency Conundrum,” “Country Risk Update,” “A Cost of Capital Primer,” “Growth and Value—Investment Returns,” and others. In his latest post, “Debt and Taxes,” he points out that one of the biggest impacts of tax reform will be on the tax benefits of debt, which will be dramatically decreased starting this year, primarily because of the lower marginal tax rate and the limits on interest tax deductions. He concludes: “The new tax code has not removed the tax benefits of debt, but it has substantially reduced them, and we should expect to see less debt overall at companies, as a consequence. In my view, that is a positive for the economy, since debt magnifies economic shocks to businesses and not only creates more volatile earnings and value, but deadweight costs for society.”
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