Posted on Tuesday, December 14, 2010
To many manufacturing companies, the tax cut proposal now being considered in Washington may be just enough to spur additional spending and hiring.
At Yushin America, a Rhode Island company that makes and maintains robotic manufacturing equipment, executives say that the business tax breaks would allow them to invest in new machinery, new employees and even a new roof.
“It’s a chance for us to put it back in the business and grow,” said Michael Greenhalgh, operations manager of the company in Cranston, which employs 60 people and has annual sales of about $21 million.
Tax cuts intended for businesses are a relatively small part of the $858 billion tax bill scheduled for a final vote in the Senate as early as Tuesday.
The Joint Committee on Taxation estimated that about $75 billion of the tax breaks in the plan were aimed at businesses, including $13 billion for a two-year extension of the coveted research and development credit, which helps cover the cost of wages for employees involved in research. The proposal also commits $22 billion for accelerated depreciation, which in 2011 would allow businesses to write off 100 percent of their capital expenditures immediately instead of over several years.
Many economists are skeptical of the tax breaks’ potential to stoke the economy in any meaningful way. Businesses are sitting on more than a trillion in cash, but are reluctant to invest because of lagging demand, a problem that tax incentives are not devised to address.
“The research and development credit is a good thing, with a limited effect, and the accelerated depreciation will get people to move forward with investment that they probably would have done anyway,” said David Wyss, chief economist at Standard & Poor’s. “But when you look at the amount of money involved, you’re not getting a lot of bang for your buck.”
But the Obama administration says it believes that the measure will help the economy gather strength and the recovery grow more robust. The president has asked a group of top business executives to meet with him on Wednesday, when he hopes to rally their support for the tax proposal and to formulate a new strategy for creating jobs and reviving the economy.
“Based on past experience with similar tax incentive programs, the Treasury estimates that the 100 percent expensing provision in the bill could support $50 billion in new investment, while other outside estimates have projected an even larger impact,” said Amy Brundage, a White House spokeswoman.
Through much of the summer and fall, Republicans warned that President Obama’s call to let the Bush-era tax cuts expire for the top 2 percent of earners — individuals with incomes above $200,000 and families making more than $250,000 — would harm small businesses. The income of many business owners is taxed at individual rates. Democrats countered that only 3 percent of all businesses made enough to be affected, but Mr. Obama conceded.
In addition, Congress has added more than $50 billion to extend an assortment of business tax breaks to benefit a variety of industries — including the renewable energy, ethanol, computer and publishing companies and oil drillers.
Some businesses say that the tax breaks are little more than a giveaway, intended to win support of Republicans in Congress and salve the president’s strained relations with business leaders. Dennis Mehiel, chairman of U.S. Corrugated Inc., was one of dozens of millionaires who wrote to Mr. Obama asking that he raise the top tax rates on the wealthy. While Mr. Mehiel says he thinks that the research and development and depreciation breaks will help some businesses, he fears that the overall package is a poor use of public money.
“I have no belief that hiring, business expansion decisions, investment decisions will be materially impacted by maintaining the somewhat lower tax rates,” said Mr. Mehiel, whose company employs 2,500 people at 20 package manufacturing facilities.
To many manufacturing companies, however, the tax deal has the effect of both reducing their own burdens and increasing orders from other businesses that will have incentive to buy equipment and supplies.
“These are catalysts for job creation,” said Monica McGuire, a policy analyst at the National Association of Manufacturers.
At Yushin, company officials say the various tax provisions will allow the robotics company to hire at least four engineers, in addition to spending $95,000 to fix a leaky roof and $90,000 more to replace outdated air-conditioning units.
Company officials at Bison Gear and Engineering, a manufacturer of electric motors in the Chicago area, said the tax savings would help them expand their payroll.
Because Bison is organized as a subchapter S corporation, and its income is taxed at its owners’ individual rate, it will benefit if Congress extends the tax break for the wealthy. The company, which has $50 million in sales and 225 employees, will also reap tax savings from the changes in depreciation and research policies.
Ron Bullock, company chairman, said three positions in the research and development staff had been vacant for months as he tried to gauge the strength of the economic recovery and the prospects of a double-dip recession. With the tax savings, Mr. Bullock said, he expects to hire as well as replace aging equipment.
“Other businesses will use their tax incentives to order products from us, which will allow us to hire and, hopefully, expand,” he said. “That’s the way you turn an economy around, and allay the fears people have about whether this economy is a good place to invest.” By DAVID KOCIENIEWSKI NYT