Comment by reaperman

Loan example doesn't work because it's not revenue used to buy the lathe. That type of loan situation is exactly what depreciation/amortization/MACRS is for. If the company brings in $500,000 but buys a $1,000,000 lathe with a loan, they have a net cash flow of +$500,000. Their NPV isn't immediately affected by the loan liability because it's offset by the positive value of the lathe asset.

Then they pay taxes on $357,100 of adjusted earnings because under a 7-year MACRS depreciation, it's assumed the lathe lost $142,900 of value in its first year of ownership (under double-declining or straight-line methods).

Your first part is accurate though.

Anyways, this tax law is fucking terrible. W2 Wages should not be capital expenses because you generally won't be using loans to pay them.