noun \in-ˈsen-tiv\ : something that encourages a person to do something or to work harder (from Merriam-Webster)
For the past several years, Congress has seen fit to enact policies that would incentivize capital investment namely through an enhanced Sec. 179 and what is referred to as bonus depreciation. While the investment caps and phase-outs have varied over the past 10 years, one thing that has remained constant is that Congress has agreed that an incentive for companies to make capital investments is good economic policy. As we stated in our comments to former Senate Finance Committee Chairman Max Baucus’ staff discussion draft on cost recovery and accounting tax reform, a basic premise of economic theory is that investment is a positive function of an increase in demand and a negative function of costs. The cost of capital to a firm includes three components: the price of capital equipment, the cost of financing the equipment and the tax treatment of investment. Thus, policies like the enhanced Sec. 179 and bonus depreciation make sense. Of course just because the economic theory makes sense, since we’re dealing with our tax code, it’s not as simple as that because like many other commonsense tax policies (including the R&D credit to name one) the enhanced Sec. 179 and bonus deprecation incentives expired at the end of 2014.
Now, while the NAM has long advocated for comprehensive tax reform that results in a pro-growth, pro-competitive, permanent, simpler code, while we slog through the process of getting to the “new and improved” code, we need to ensure that the right policies are in place so business can continue to grow and compete. This is why manufacturers support the extension of these incentives because for manufacturers it’s not just giving them incentives to buy new equipment and machinery but it ensures that for those who make equipment and machinery that their customers are able to make these purchases as well. Consider the nearly 40 percent of farmers who according to an AgWeb.com article who aren’t buying machinery in 2014 mainly because of uncertainty around Sec. 179. And if manufacturers don’t have as many customers for their products then our still struggling economy won’t have as much of the juice provided by manufacturing. The impacts on manufacturing are particularly important because for every $1.00 spent in manufacturing, another $1.48 is added to the economy, the highest multiplier effect of any economic sector.
So while manufacturers await much needed comprehensive tax reform, keeping pro-growth tax incentives in law certainly makes sense.
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