A few months ago, Congress passed the Bush tax cut package. Among the bill’s many provisions was a new 50 percent expensing allowance for machine tools and other equipment ordered between May 6, 2003, and December 31, 2004, and placed in service by that last date. The intent is to encourage investment in the kind of capital equipment that helps manufacturers be more competitive.
Reports that this act is starting to have its intended effect are coming in. “The tax cut was just the boost we needed to purchase new equipment,” says Lloyd Hoover, president of Keystone Machinery in Ephrata, Pennsylvania. This eight-person job shop is installing two machines from Milltronics Manufacturing Co. (Minneapolis, Minnesota), a ML18/60 CNC turning center and a VKM4 milling machine. “These machines give us CNC capability we’ve never had before,” Mr. Hoover says.
According to Tim Rashleger, Milltronics president, Keystone is typical of many of his customers who were sitting on the fence only a few months ago. “They were hesitating because the economy seemed too uncertain. The incentives of the tax cut simply moved them past indecision, making the earning power of these machines too good to pass up.”
“I did the tax savings calculations, and as a user of machine tools ourselves we could not pass up this opportunity and are adding several new machining centers into our own shop. That keeps work and jobs here,” says Mr. Rashleger.
He notes that the special deal small businesses get with the new law is particularly effective. Shops whose total equipment purchases do not exceed $400,000 a year get an added first-year bonus depreciation of $100,000. They then can take the new 50-percent write-off on the remaining amount of the equipment purchases.
Other machine tool builders are reporting similar responses. Mazak Corp. (Florence, Kentucky) offers this example: Mentor, Ohio’s Parker Precision Inc., an eight-person production shop doing high-precision and quick-turnaround components jumped at the chance to increase output at a reduced cost. “The combination of reasonable interest rates and the new tax incentives helped me purchase seven new innovative machines at the price of five,” says Reeve Parker, company president. The machines purchased include five Quick Turn (QT) Nexus 200 and two QT Nexus 250 CNC turning centers. Mr. Parker says that this kind of advanced equipment helps him compete for work with China “as well as the guy down the street.”