A Jolt Is Not A Surge

The Economic Stimulus Plan passed by the U.S. Congress and signed into law by the president in mid-February includes two key tax provisions intended to boost productivity in American manufacturing. These short-term measures are certainly welcome, but the tax and investment policies that would help in the long term are still up in the air. As reported by AMT—The Association For Manufacturing Technology, one provision increases the amount that small businesses can write off for new and used equipment purchases in 2008 from the current $128,000 to $250,000. The cap on how much equipment can be purchased to enjoy the write-off has been increased from the current $510,000 to $800,000. The other provision grants a one-year, 50-percent bonus depreciation allowance for new (but not used) machine tools and other equipment ordered and placed in service during 2008. Both of these provisions are temporary, designed to stimulate the economy quickly.

Whether or not these measures will have their desired effect on the national economy is debatable. When looking at something as massive and complex as the U.S. economy, it’s hard to tell if any “quick-fix” enactments are truly effective. It’s much easier for managers at an individual shop to see how these tax breaks will benefit the shop’s own economic picture. For the moment, that is where the attention should lie.

Many companies considering the purchase of new equipment are hesitating because of uncertainty in the economic conditions (the mortgage mess, the credit crunch, sky-high gas prices and talk of recession). The new incentives created by the stimulus plan may push them over the top and get the purchase order signed. Of course, quick action is essential. Given that many machine tool builders and production equipment manufacturers have backlogs, getting new equipment into use before the end of the year could be a challenge for some shops.

In the meantime, the big question remains unanswered: Will policy makers and elected officials make equitable trade policies and tax laws that promote the long-term competitiveness of U.S. manufacturers? The National Association of Manufacturers, for example, is calling for a reduction in the long-term corporate capital gains rate; a stronger, permanent research and development credit; more free-trade agreements; and other specific actions. The merits (and possible risks) of such proposals should be examined urgently in light of America’s slipping global competitiveness. Manufacturing in this country needs to be energized for the long haul, not simply stimulated for a short burst.