A $168-billion package of tax incentives aimed at stimulating the softening economy is on its way to the White House, where President Bush is expected to sign it. The legislation, which the Senate and House passed on Feb. 7, could give a boost to construction equipment purchases through expanded writeoffs.
But the final version disappointed construction officials because it has no new federal spending on infrastructure. Advocates of alternative energy also didn’t get extensions they had sought for energy-efficiency and renewable-power incentives.
For small construction firms, a key item in the final measure is an expanded deduction for capital spending. The bill permits small companies to deduct from income this year up to $250,000 worth of equipment, computer software or other capital goods purchases. The writeoff phases out, dollar-for-dollar, when a firm’s total capital spending exceeds $800,000.
That provision sweetens the existing Section 179 break, under which companies could “expense” capital purchases of up to $125,000 in 2007, with a phaseout threshold of $500,000.
The stimulus bill’s cost will be $168 billion over two years, according to estimates from the congressional Joint Tax Committee. Of that, $116.7 billion is for benefits aimed at individuals, through rebates of up to $600 per taxpayer and $1,200 for married couples, plus $300 per child for taxpayers with children.
The rebates could apply to engineering and construction firms that are partnerships or S corporations, though rebates will start to phase out for individuals who earn more than $75,000 or couples earning more than $150,000.
The Association of Equipment Manufacturers and other groups support the expanded breaks for capital goods purchases.
But Ken Simonson, Associated General Contractors’ chief economist, says that over all, “I would expect very modest impact to construction from this package.” Simonson says that the increase in Section 179 benefits will be “helpful, if a company has the demand to make equipment purchase worthwhile. It’s not likely to add to that demand at the moment, however.”
He says AGC would have preferred that the legislation had included public works spending. “That in turn would have encouraged companies to go out and buy equipment and add to the nation’s productive capacity.” He does say that the writeoff provisions will “make some difference in the timing” of capital purchases, perhaps encouraging a firm to buy equipment this year that they otherwise would have purchased in 2009 or buy a bigger piece of equipment or one with additional features.
He adds, “Similarly the one-time payments to individuals are not going to change the underlying tax rates or the incentives to work or invest.”
The final bill is larger than a $146-billion version that the House had approved Jan. 29. But it’s smaller than a package the Senate Finance Committee had approved the following day. The committee’s version had broader rebates and a group of tax breaks aimed at energy efficiency and renewable power.
But Senate Democratic leaders on Feb. 6 came up one vote short of the 60 needed to ensure passage of the Finance Committee bill. After that cloture vote failed, the Senate then approved the basic House-passed measure, though adding a provision to provide rebates to disabled veterans and retirees who receive Social Security benefits.
Among the provisions dropped were the energy tax breaks certain energy organizations had hoped for. Kateri Callahan, president of the Alliance to Save Energy, said her group was “very disappointed” that the energy provisions were deleted. But she urged lawmakers “to quickly identify another legislative vehicle that will enable prompt enactment of a long-term extension of these incentives.”