Restating the Obvious

By March 10, 2014Taxation

The release today of NAM/IndustryWeek Survey of Manufacturers confirms what manufacturers have long known, the expiration of the on-again and off-again investment tax incentives have companies holding off on making key purchases and thus delays the robust economic growth we need. According to the survey, the expiration of two of the key incentives for manufacturers, the “enhanced” Section 179 expensing and the so-called “bonus depreciation,” forces many manufacturers to rethink with investment plans. The enhanced Section 179 allowed smaller companies to write off up to $500,000 of capital equipment immediately if they invest less than $2 million a year and the so-called “bonus depreciation”— available to companies of all sizes — allowed taxpayers to expense 50 percent of the cost of assets bought and placed into service in 2013.

The survey found that 64.4 percent of manufacturers (three-quarters of medium-sized firms with between 50 and 499 employees) said they took advantage Sec. 179 and/or bonus depreciation in 2012 or 2013, or. “(R)oughly 40% of small and medium-sized manufacturers felt that the expiration of these provisions would alter their company’s investment plans for this year.”  As we’ve long maintained, manufacturers use these tax provisions to replace old or out-of-date equipment (73.9%), add capacity for existing product lines (56.7%) and add new capacity for additional products (50.2%). And in rebuttal to those who think that the impact of Section 179 is limited to small businesses, respondents also confirmed what the NAM has long known, that “they sold capital equipment, and Section 179 was an effective sales tool for them.”

Today much of the focus over tax policy is centered squarely on the need and various proposals for comprehensive tax reform. Indeed, the NAM has long called for comprehensive reform however in the meantime while policymakers work through the process of arriving at this much needed overhaul, manufacturers need these critical incentives extended now, not resurrected during the Congress’s final hours in December. Once again, this survey finds that government created barriers continue to hold back a full and robust economic recovery finding that, “(a)ll told, 79 percent of respondents said there is an unfavorable business climate because of taxes, regulations and government uncertainties.”

The tax extenders package, which includes Sec. 179 and bonus depreciation, is a poster child for the drag that uncertainty has on the economy. Let’s hope that the Congress acts quickly to reinstate these provisions and keeps them in effect until we can get to a newly reformed system which will really allow the economy to take off and grow.

Carolyn Lee

Carolyn Lee

Senior Director of Tax Policy at National Association of Manufacturers
Carolyn Lee is Senior Director of Tax Policy at the National Association of Manufacturers (NAM), the nation's largest industrial trade association. In this role Carolyn is responsible for portions of the NAM's tax portfolio including issues individual marginal tax rates - which are a top priority for small and medium sized manufacturers - as well tax issues relating to investment income, energy efficiency and capital cost recovery.
Carolyn Lee

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