Tag: expensing

Bonus Depreciation Thwarts Partisanship

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.

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President Proposes Expensing, Would Boost Manufacturing Investment

Manufacturers, the largest sector using expensing, a tax provision that lowers the cost for companies making new business investments, such as in machinery and equipment used on the plant floor, got a boost today by the President’s proposal in support of temporary expensing from September 2010 through 2011. President Obama outlined the plan during a visit to the Stromberg Sheet Metal Works facilities in Beltsville, Md. (Remarks.)

This proposal, if not counteracted by punitive tax increases on business, is a way to boost job creation for the workers needed to build and the workers needed to run the new machinery.

With 2010 3Q GDP today registering anemic 2 percent growth and a relentless unemployment rate hovering at 9.6 percent, increased expensing is a proven, effective tool for powering new jobs. In fact, increased expensing was successfully launched by both a Republican Administration after the 2001 terrorist attacks as well as by the current Democratic Administration in recent stimulus laws. This issue might be just the trick (no pun intended on this eve of the eve of Halloween) to foster bipartisanship consensus at both ends of Pennsylvania Ave — between Congress and the Administration.

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Circumnetting the Taxes, the Economy and Politics

Wall Street Journal, Stephen Moore, “Big Business to Obama: Thanks, But No Thanks“: “Business groups are nervous about likely tax increases to ‘pay for the proposed cuts, including tax hikes on energy companies and firms with overseas profits. “This would offset the positive features of any tax cuts,” one K Streeter says, adding: ‘Right now there just isn’t much trust in the business community in anything Obama does. We just want an end to the uncertainty.’”

CNN,Obama tax breaks: Limited help for small biz“: “NEW YORK (CNNMoney.com) — President Obama’s plan to offer $200 billion in tax breaks for businesses that invest in plants and equipment would likely have only a limited impact on most small businesses, experts say.”

Larry Kudlow, National Review Online, “Bashing Bush and Boehner Won’t Work“: “While Mr. Bush made plenty of economic mistakes, his 2003 reductions of marginal tax rates led to more than 8 million new jobs in the next four and a half years. Under Bush, the unemployment rate dropped to 4.6 percent…And almost all economists agree that the 2007-08 financial meltdown was a housing-bubble and credit event. It had nothing at all to do with cutting taxes.”

Wall Street Journal, Kevin Hassett, Glenn Hubbard, American Enterprise Institute, “Obama Discovers Incentives“: “Mr. Obama and his team now appear to accept that growth-oriented tax cuts provide a more reliable stimulus than government spending. The investment incentive the administration proposes is meaningful–though not without some potential pitfalls–and it offers a road map for future policy change to emphasize economic growth.”

New York Times, “Tax Cuts May Prove Better for Politicians Than for Economy“: “With Congressional midterm elections looming, the financial debate in Washington this fall will probably be consumed by one incendiary and expensive issue: whether, and how, to extend the multitrillion-dollar Bush tax cuts.”

Wall Street Journal editorial, “The Small Beer Bill: The President has an offer that business is refusing“:

[The Obama Administration's] new burdens on small business include a looming increase in capital gains and personal income tax rates, roughly half of which will come from noncorporate business profits; a minimum wage increase to $7.25 an hour from $6.55 in July 2009 when the jobless rate was 9%; the oil drilling moratorium, which has hit hundreds of small energy companies; the new health insurance mandate on employers with more than 50 employees; the new ObamaCare 1099 tax filing requirements; an increase in the death tax rate to 55% next year from zero today; a Medicare payroll tax increase to 3.8% from 2.9% starting in 2013; and compulsory unionism for government contractors and federal construction projects (Executive Orders 13496 and 13502.)

The best thing the White House could do now to help small business would be to call for a regulatory, tax and mandate moratorium. As part of his fall campaign strategy, Mr. Obama wants voters to believe that the paltry recovery has nothing to do with his policies. Small business owners know better.

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Small Business, Small Business, Small, Small, Small

From The Wall Street Journal, “Obama Tax Plan Holds Less for Small Business” (subscription):

Small manufacturers in particular may benefit given that many rely on industrial-size machinery to function. In 2009, small and midsize manufacturers invested an average of $1.4 million in factory equipment, down from $2.3 million in 2008, according to a survey of the National Association of Manufacturers, a Washington, D.C., trade group with 11,000 members.

But Dorothy Coleman, vice president of tax and domestic economic policy for the National Association of Manufacturers, warns that other new legislation that the president has proposed could thwart any relief that the equipment write-off option may provide to small companies. “Potential tax increases on businesses could neutralize the benefits of the provisions,” she says

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