Section 179 expensing Archives - Shopfloor

Exactly the Point

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Manufacturers applaud the upcoming action in the House of Representatives to consider “America’s Small Business Tax Relief Act of 2014,” H.R. 4457, to make Section 179 permanent. We hope that this common-sense bill will pass with broad bipartisan support.

As we’ve often talked about in this space, making this provision permanent is a priority for small and medium-sized manufacturers. In order to compete in a worldwide economy, manufacturers need to plan and invest and meet emerging needs. Having certainty over the tax treatment of critical investments will make planning for future investment significantly easier. Capital investment is key to economic growth, job creation and competitiveness. Consequently, enactment of this policy would amount to a major step towards a tax code that will promote investment.

Take for example SASCO Chemical Group, Inc. (SASCO), a Georgia-based third generation family-owned chemical manufacturer with worldwide distribution. According to SASCO’s President Marc Skalla, “Innovation has made us who we are today; reinventing ourselves through innovation will secure our future and make us who we will be tomorrow.” To continue this forward-thinking progression, SASCO opened a state-of-the-art Innovation and Technology Center that houses their R&D, Technical, and Process-Pilot plant team. Over the past few years, SASCO has relied heavily on both Section 179 and bonus depreciation provisions in the Tax Code to enhance cash flows on scale up projects originating mainly from their Innovation and Technology Center. According to Marc, “without such provisions, our ability to transition innovations from a small-scale lab environment to full production lines would be severely hampered.  Capital projects such as those our Company launches are exactly the type of projects that these tax provisions are intended to support.”

Companies like SASCO who are innovating, growing and competing are at the heart of the ongoing manufacturing renaissance currently taking place in the United States.  These deductions have allowed SASCO to triple their facility’s capacity over the past four years to keep up with the double digit growth they have experienced annually since 2008. This growth has earned SASCO many accolades including a recent recognition from President Obama’s E-Awards for significant contributions to increasing American exports.

Manufacturers like SASCO need stable, pro-growth, pro-investment tax policy to allow them to face the challenges of competing in a global marketplace. Manufacturers face enough uncertainty and the tax code should not be adding more. We urge every member of the U.S. House of Representatives to support H.R. 4457. Until we can get the full panoply of pro-growth pro-manufacturing tax policies enacted via comprehensive tax reform this is a critical step forward.

Survey Says… Section 179 and Bonus Depreciation Are Critical

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In the latest NAM/IndustryWeek Survey of Manufacturers that was released earlier this morning survey respondents once again underscore the importance of investment incentives like enhanced Section 179 expensing and bonus depreciation and the role that these common-sense provisions play in their firms’ investment decisions. According to the survey, nearly a quarter of respondents said that “they were holding off on making investments until Congress extends Section 179 expensing or first-year bonus depreciation.”

If these provisions were not expensed, over a third of respondents “said that they would not make any investments this year without these provisions.” That would be on top of the 5 percent of respondents that said that they were not planning on making any investment this year at all. As NAM’s Chief Economist Chad Moutray puts it in the survey analysis, “that is a significant portion of businesses that would be negatively impacted by the loss of these investment incentives.

And in a pre-emptive response to those who say that the economy can still benefit when Congress gets around to passing the extenders in the 11th hour during the likely lame duck session later this year, this survey also underscores that the sooner Congress acts to restore these provisions the better. In fact according to our survey, “more than half of those surveyed said there would not be enough time to make capital spending purchases and put these capital expenditures into place if these incentives are not extended until mid-November.”

This survey makes it all the more clear that the House of Representatives should overwhelmingly support the passage of H.R. 4457, America’s Small Business Tax Relief Act later this week. Manufacturers of all sizes need this action and they need it now!

House Taxwriters Move Forward on Tax Reform Part I

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Kudos to House Ways and Means Committee members who today approved several bills that will revive, make permanent and—in some cases—improve several expired tax provisions that are high priorities for manufacturers.

The individual bills call for a permanent and robust R&D credit, provide first-year expensing for capital investments by small manufacturers, allow manufacturers to defer tax on active financing income earned overseas and let U.S. multinationals redeploy cash overseas without triggering an additional U.S. tax burden. Taken together these bills will stimulate innovation, create more jobs, spur investment and make U.S. manufacturers more competitive—all factors that are critical to our nation’s economic growth.

In an April 28th letter to Committee members in advance of the hearing, the NAM pointed out that legislative action to make permanent these important tax provisions represents a significant step forward in achieving our goal of pro-growth, pro-manufacturing tax reform. Here at the NAM we’re committed to both ending the continuing cycle of temporary tax provisions and advancing much-needed comprehensive tax reform. Today Ways and Means members added a strong voice to these critical provisions and demonstrated their commitment to pro-growth tax policy. Thanks to Chairman Camp and his Committee for getting the ball rolling towards these goals.

Just What the Doctor Ordered

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Last Friday President of the Federal Reserve Bank of Minneapolis Narayana Kocherlokata (Ph.D.), noted in a speech that, “the future course of the U.S. economy is not predetermined by the events of the past seven years. Both history and theory have the same lesson: It is possible to undo what might now appear to be permanent changes.” The way that he proposes to do this is by reducing he suggests is by, “reducing the tax rate on the process of transforming current goods into future goods. In practice, the government can accomplish such a reduction in a relatively targeted fashion by allowing businesses to completely expense any investments into equipment, structures, or R&D.” Doing so, “leads to a higher rate of capital accumulation, which stimulates future economic activity by lowering the future costs of production,” something all manufacturers agree is critical.

This particularly timely prescription for economic recovery comes just days after two bills were introduced to make two critical, pro-investment incentives permanent, H.R. 4457, by Reps. Tiberi (R-OH) and Kind (D-WI) to permanently extend increased Section 179 expensing and H.R. 4438 to simplify and make permanent the research credit introduced by Reps. Brady (R-TX) and Larson (D-CT. These bills are just what the Ph.D. ordered.

The NAM has long supported the extension of enhanced Section 179 expensing and the bill introduced by Reps. Tiberi and Kind would take this one step further and make this important pro-growth, pro-investment incentive permanent. The expiration of the enhanced Section 179 at the end of 2013 has put investment decisions on hold for many small and medium sized manufacturers who do not know what tax provisions may be in place by the end of this year. H.R. 4457 would raise the cap for Section 179 expensing from $25,000 where it is today to $500,000 with a $2 million phase out. Making this provision a permanent part of the tax code will help these manufacturers invest and compete but it will also help those manufacturers whose customers rely on enhanced Section 179 to help defray the tax cost of their investment.

Likewise, the R&D tax credit is a proven incentive for spurring private-sector investment in R&D and creating domestic, high-wage R&D jobs, as 70% of credit dollars are used to pay the salaries of high-skilled R&D workers. For manufacturers, R&D fuels innovation that translates into new product development and increased productivity—two key factors necessary for growth in manufacturing. Unfortunately, the credit has never been a permanent part of the tax code since it was first enacted in 1981, and Congress recently allowed the R&D Credit to expire on December 31, 2013, creating unnecessary uncertainty for American manufacturers. The NAM supports the strengthened, permanent R&D credit provided in H.R. 4438, which will enhance the credit’s incentive value and increase U.S. competiveness in the global race for R&D investment dollars.

So while not full expensing, by seeking to make these important policies permanent, these two measures would go a long way towards injecting some certainty and growth into our still lagging economy and would be actions manufacturers would certainly applaud.

Carolyn Lee is Senior Director of Tax Policy for the National Association of Manufacturers.

Christina Crooks is Director of Tax Policy for the National Association of Manufacturers.

Restating the Obvious

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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.

NAM Applauds Key Investment Incentives in the “Start Up Jobs and Innovation Act”

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Manufacturers know firsthand that capital investment is critical for economic growth, job creation and competitiveness, which is why the NAM has long supported a strong capital cost recovery system. Kudos to Sens. Patrick Toomey (R-PA) and Bob Menendez (D-NJ) for introducing the “Start Up Jobs and Innovation Act” and for recognizing the critical role that Sec. 179 expensing plays in encouraging investment by smaller manufacturers. As a capital intensive industry sector, making permanent the higher expensing limit that is in law today is key to helping manufacturers grow and compete. This is a key provision for NAM members.

More generous expensing  lowers the after-tax cost of investing  for manufacturers making capital investments and helps spur sales for manufacturers selling the equipment. The NAM applauds the Senators for making permanent the current $500,000 expensing limit, eliminating the phase-out, and indexing the limit to inflation. These common-sense updates to this provision will allow more manufacturers to realize the benefit of expensing. Manufacturing has the highest multiplier of any other economic sector — every dollar spent in manufacturing adds another $1.48 to the economy. A permanent expansion of Sec. 179 benefits U.S. manufacturers and the economy as a whole. We applaud the Senators for their leadership in this area.

New Business Investment Tax Incentives Will Encourage Hiring

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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.