Editorial»
Bush’s bonus depreciation fits election cycle
DEC 20 - Virginia Natural Gas seems to need a new propane plant, and it probably needs it pretty soon. But if the company had any doubts about whether to hurry up and finish the $30 million project roughly in time for next year’s election, President Bush removed them May 28.
By signing the Jobs and Growth Act of 2003, Bush dangled irresistible incentives before VNG and thousands of other companies to switch investments that might have been planned for 2005 or even 2006 into 2004. Opening the propane facility next December instead of a month later, by my calculation, will save VNG and its parent $6 million in state and federal taxes — a huge amount for a company that paid $58 million in total income tax last year.
Only three decades after Yale economist William D. Nordhaus proposed the existence of what he called “the political business cycle,” Bush and his allies have perfected the art of short-term economic manipulation. VNG and other companies rushing to take advantage of the “bonus depreciation” provision in the recent tax bill are expected to spend billions of dollars on capital equipment next year, revive the sleepy business-investment sector and — not incidentally -- ensure Bush’s re-election.
Merrill Lynch economist David Rosenberg expects bonus depreciation to be “wildly stimulative” in 2004 — so stimulative, he suggests, that even comatose technology spending will sit up, stretch out and take a few laps. “For all the talk of fiscal stimulus this year, it’s going to be even greater next year,” Rosenberg said in an interview. “We have two guys in Washington now” — Bush and Fed Chairman Alan Greenspan — “who know how to get the growth ball rolling.”
We all knew Greenspan had pushed interest rates to historic lows, luring consumers and businesses to borrow and spend. And we knew Bush’s personal income-tax cut propelled growth in the third quarter to an annual rate of 8.2 percent, the best pace in two decades. Rosenberg believes the bonus-depreciation gambit will prolong the effervescence, help push growth to a healthy 4 percent next year and possibly even spark a “Y2K-like” investment spree as companies hurry to spend before the deadline expires at the end of 2004. Here’s the deal. The 2003 tax bill essentially allows businesses to immediately deduct 60 percent or more of what they spend on new equipment from taxable income as long as the equipment goes into service before Jan. 1, 2005. Under normal depreciation schedules, a 10 percent or 20 percent annual deduction is typical.Posted on: 2003-12-21 02:12
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