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Experts: Stimulus Signing a ’Shot in the Arm’

Mon March 25, 2002 - Northeast Edition
Tracy Carbasho


Equipment manufacturers say the 30-percent depreciation bonus included in President Bush’s economic stimulus package should prompt buyers to start digging into their pockets once again.

“The equipment industry has suffered from a rapid decline in capital spending since the fourth quarter of 2000,” said Emmett Barker, co-president of the Association of Equipment Manufacturers (AEM). “This legislation should give it the shot in the arm we’ve been waiting for to help speed the economic recovery that our members believe may be just around the corner.”

The Job Creation and Worker Assistance Act of 2002, signed by President Bush on March 9, is the culmination of several months of partisan bickering about what action is necessary to promote economic recovery. House leaders supported the construction industry’s plea for a 30-percent depreciation bonus, although Senate Majority Leader Tom Daschle had lobbied for a 40-percent bonus for the first six months and 20 percent for the next six months.

The Republican-controlled House voted 417-3 in favor of the bare-bones compromise bill, representing the first time that a substantial number of Democrats have offered support for economic stimulus legislation. The overwhelming House support also gave the legislation the necessary momentum to move through the Senate after months of partisan gridlock. Previous proposals approved by the House were met with staunch opposition by Senate Democrats who maintained the tax breaks originally sought by President Bush to help corporations and wealthy individuals were too excessive.

“This new law will provide tax incentives for companies to expand and create jobs by investing in plants and equipment,” said President Bush. “This measure will mean more job opportunities for workers in every part of our country, especially in manufacturing in high tech and for those who work for small businesses. The bill will also stimulate economic growth by extending net operating loss rules and by granting some alternative minimum tax relief.”

Nick Yaksich, vice president of government affairs for the AEM, said every positive step is an important one when an industry is trying to recover from economic setbacks. He said the three-year capital depreciation bonus will inject new life into the construction and equipment industries which, in turn, will lead to the creation of more long-term jobs.

The depreciation bonus is equal to 30 percent of the cost of new equipment for the year in which the equipment is placed in service. The 30-percent bonus applies to equipment, vehicles, machinery and software put into service after Sept. 10, 2001 and before Sept. 11, 2004. The other 70 percent would be depreciated according to current depreciation schedules.

For example, if a company purchases property that costs $1 million and places it into service on March 1, 2002, a first-year depreciation deduction of $300,000 would be allowed. The remaining $700,000 would be recovered in 2002 and subsequent years as outlined in the depreciation rules of the existing laws. The current tax law states that businesses must depreciate the entire cost of such new equipment over a five-year period.

In addition to creating the depreciation bonus, the administration’s new tax bill also:

• Temporarily extends the general net operating loss carryback period from two to five years for taxable years ending in 2001 and 2002,

• Provides an extra 13 weeks of unemployment benefits for eligible displaced workers,

• Encourages recovery and rebuilding in New York City through investment incentives and new financing mechanisms, and

• Extends a number of expiring tax provisions.

“We’ve cited statistics from the Department of Commerce that show that investment in new equipment has continued to fall sharply over the last year while other key economic indicators, including personal consumption expenditures, have continued to be strong and show growth despite the economic slowdown,” said Tony Obadal, Washington counsel for the AED. “The message AED members have been sending to Capitol Hill has been clear. If Congress wants to stimulate the economy, kick-start the manufacturing sector and create new jobs, it must encourage new equipment purchases. Clearly, that message has gotten through.”

Rep. William Thomas, R-CA, who chairs the House Ways and Means Committee, offered a lukewarm response to the Job Creation and Worker Assistance Act, saying it falls short of his expectations.

“The areas where we are able to agree form a skeleton bill that does the minimum to help displaced workers and businesses cope. It is nonetheless still important to the economic future of millions of Americans,” said Thomas. “But let’s not delude ourselves that this package is stimulus. It’s insurance for economic growth, but it’s the cheapest policy.”

Treasury Secretary Paul O’Neill applauded the Senate for following the lead of the House in approving the compromise legislation, which contains many of the provisions President Bush has been calling for since October.

“This bill not only takes care of unemployed workers, it also has tax relief for employers to create and retain jobs as a major part of it,” said O’Neill. “This legislation will add momentum so that we have a more robust economic recovery and return to full prosperity.

“Make no mistake — this legislation is about jobs. President Bush has insisted that it is not enough to help people out of work unless we can also help them get back to work,” added O’Neill. “This legislation will do that. It will speed Americans back to work and help the unemployed until they return to work. This is a great victory for American workers and their families.” CEG




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