Yesterday more than 100 associations, representing a cross section of industries on the front line trying to grow and create jobs in a fragile economy, urged in a letter to conferees on the payroll tax cut extension bill HR 3630 to include in the final conference agreement an extension of 100% bonus depreciation (sometimes referred to as 100% expensing) through 2012.

This provision has garnered bipartisan, bicameral support as well as the support of the White House. The broad support is due in part to the fact that bonus depreciation allows manufacturers to write off the full cost of capital investments, e.g. plant machinery and equipment, in the year of purchase rather than over the depreciation life of the capital investment, which typically span 10 to 20 years.

Given our fragile economy, this provision gives a temporary boost to the customers who want to buy and the suppliers who want to manufacture capital equipment in the USA.  Jobs are maintained and created. Just ask small manufacturer Campbell Fittings of Boyertown, PA, about job creation related to this provision effective for past 2 years. Bonus depreciation drove his company’s decision to make more capital investments that resulted in hiring 40 new workers in the past 15 months to run the new equipment. If 100 percent bonus depreciation were extended through 2012, he plans to make more capital investments.  The new equipment allows his company to compete with foreign competitors. 

Today’s Wall Street Journal article “With Tax Break Corporate Rate is Lowest in Decades” was disingenuous in citing a price tag of $55 billion in each of the past two years for bonus depreciation.  Bonus depreciation is a timing issue, and as such, that means companies can write off the cost of a $100,000 piece of new machinery purchased this year and thus would not be taking depreciation for the next nine years for a typical piece of machinery.  

Kudos to Congress and the Administration in recognizing this private sector job creating provision given our abysmal unemployment rate exceeding 8 percent. Capital investments equal putting people back to work.

Yesterday NAM Board Member and President and CEO of Marlin Steel Wire Drew Greenblatt unveiled a new laser at their facility in Baltimore Yesterday. In attendance at the event was Baltimore Mayor Stephanie Rawlings-Blake (D-MD), Senator Ben Cardin (D-MD), Congressman C.A. “Dutch” Ruppersberger (D-MD) and Congressman John Sarbanes (D-MD).

Marlin Steel Wire President and CEO Drew Greenblatt is jointed by Sen. Ben Cardin (D-MD), Baltimore Mayor Stephanie Rawlings-Blake (D-MD), Rep. C.A. "Dutch Ruppersberger (D-MD) and Rep. John Sarbanes (D-MD) at the ribbon cutting for a new state of the art laser.

Important policies such as the R&D tax credit and bonus depreciation allow companies like Marlin Steel to invest in new technology and equipment. This investment helps create jobs not only with the companies purchasing the equipment but also the manufacturers of the equipment and all the way down the supply chain.

Yesterday’s event was a great opportunity for these members of Congress to see first-hand the impact of these policies.

President Obama this afternoon signed into law H.R. 5297, the Small Business Jobs and Credit Act, which allows businesses of all sizes to immediately write-off 50 percent of the cost of depreciable property purchased and placed in service anytime during 2010.  This provision is a temporary extension of the bonus depreciation provision included in both the 2008 and 2009 economic stimulus laws.  The new law also includes a provision that increases Section 179 expensing for two years by increasing the expense limitation to $500,000 with a phase-out threshold of $2 million for years 2010 and 2011.

The bonus depreciation provisions will encourage manufacturers to make investments that create jobs.  For example, Joseph McGlynn, executive vice president of Campbell Fittings Inc., a small manufacturer of industrial hose couplings in Boyertown, Pa., is working now to purchase factory floor equipment that will be eligible for the 50 percent  bonus depreciation extension available thanks to the new law. The company plans to hire an additional 4-5 employees to run two new pieces of equipment it hopes to purchase and have operating before year’s end.   

For a technical explanation of the new investment incentives, see pages 7-15 of the Joint Committee on Taxation technical explanation.

Details on the 2010 bonus depreciation and expensing provisions, prepared by Deloitte, can be viewed on the NAM website on pages 2 and 3.

As the continued anemic economic recovery with high unemployment challenges manufacturers, bravo that Congress finally acted, albeit nine months into the year, in passing a proven business capital investment tax incentive that garnered bipartisan support.  Specifically, the tax relief included in the now-passed Small Business Jobs and Credit Act , H.R. 5297, will allow businesses of all sizes faster recovery of investment costs by permitting businesses to immediately write-off in the first year 50 percent of the cost of depreciable property purchased and placed in service in 2010.*

Jobs will be saved and jobs created with this investment incentive, as there are customers who want to buy and sellers who want to sell new equipment.  And it takes workers to manufacture and run such equipment.  The positive ripple effect of this new law will be immediate. 

After yesterday’s House passage of this provision, two testimonials quickly arrived in my e-mail. One Midwest small manufacturer reports he will now spend $150,000 on new equipment and hire seven full time employees and one part-time employee to operate the new plant equipment. Another East Coast small manufacturer told me he is quickly ordering new equipment and will hire an additional 4-5 more employees to run it. 

Bonus depreciation will allow manufacturers to act, that is, to purchase and sell machinery and plant floor equipment and put workers back to work. We look forward to President Obama signing the bill on Monday.

* The bonus depreciation extension in H.R. 5297 — which passed by a vote of 237-187 – is a temporary extension through 2010 of the bonus depreciation included in both the 2008 and 2009 economic stimulus laws.  The President’s Fiscal Year 2011 Budget included an extension of bonus depreciation through 2010. Also included in the new law is an increase in Section 179 expensing for two years. 

In his full-bore populist speech in Cleveland today, President Obama repeated the now all-too familiar line about tax breaks for companies that ship jobs overseas.

And then he added something new.

This week, I proposed some additional steps to grow the economy and help businesses spur hiring. One of the keys to job creation is to encourage companies to invest more in the United States. But for years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries.

I want to change that. I want to change that. [applause]

So now it’s bad to create profits overseas?

A reminder from a recent NAM Key Vote letter:

An estimated 22 million people in the United States – more than 19 percent of the private sector workforce and 53 percent of all manufacturing employees – are employed by companies with operations overseas. …Some of the proposed tax increases, which are mischaracterized as closing tax loopholes, actually represent significant changes to pro-growth tax policy supported by Congress and the Administration.

Which raises a larger point. Save perhaps for the familiar R&D tax credit, these new, large-scale tax policy proposals that the President rolled out this week — with just a month or so left before Congress leaves town again — cannot be adopted in isolation. Their impact extends throughout the tax code, changes that require serious examination for their impact on businesses, taxpayers as well as their potential unintended consequences.

Here’s the most detailed presentation on the President’s proposals we’ve seen at Whitehouse.gov, provided by Communications Director Dan Pfeiffer at the White House blog, “Rebuilding Our Economy to Work for Middle Class Americans Again“: (continue reading…)

The National Association of Manufacturers helped organize an April 1 letter by more than 80 groups to Congressional leaders calling for Congress to renew the expired bonus depreciation law through at least the rest of 2010. Bonus depreciation represents the kind of enhanced capital-cost recovery system that has proved to spur business investment.

From the letter:

Bringing back bonus depreciation will encourage companies of all sizes to invest in newer, more efficient, and more environmentally-friendly equipment, which will help large and small businesses alike. In the manufacturing sector, for example, many smaller companies produce custom-made equipment that is often sold to larger companies ineligible for Sec. 179, but which could claim bonus depreciation. The two capital investment incentives work well in concert. Both are sorely needed now to help spur sales and create jobs.

Reinstating bonus depreciation will help inoculate the economy against a backward slide in business capital investment in the months ahead, enhance the impact and benefits of other job creation legislation (e.g., infrastructure investment), encourage recovery in fragile, capital-intensive sectors of the economy (e.g., construction and manufacturing), and, most significantly, put Americans back to work.