Capital Markets

Leasing Companies Laud Obama’s Speech

Suspecting that the President wants to revive bonus depreciation, equipment lenders hail a reference in the State of the Union address.
David KatzJanuary 28, 2010

Heartened by a line in President Obama’s State of the Union address Wednesday night, leaders of the Equipment Leasing and Finance Assn. issued a press release Thursday praising the President’s attention to “the need to invest in new plant and equipment for all businesses.”

During a section of the speech that drew applause for its call for a stimulus to small businesses as a way to spur job growth, the President called on Congress “to provide a tax incentive for all large businesses and all small businesses to invest in new plants and equipment.”

Leaders of the leasing industry read that as a clue that Obama’s budget proposal, which is likely to be issued by Sunday night or Monday, would include an expense item enabling the funding of a revival of a bonus depreciation tax credit. “The conventional wisdom” to be derived from the speech, says David Fenig, ELFA’s vice president of federal government relations, is that a bonus depreciation provision in the American Recovery and Reinvestment Act of 2009, which expired at the end of last year, would be retroactively extended for 2010.

Such a measure would accelerate straight-line depreciation back into the first year of equipment ownership. For example, a purchaser of equipment might normally be able to claim a depreciation of 20% for each year of the first five years of ownership. Under the measure Fenig thinks the President will propose, the purchaser could claim a 50% depreciation in the first year. The aim would be “to encourage people to act now, not later,” he says, adding that the cost of the measure could be about $30 billion.

The association will also be “looking closely” at the President’s State of the Union proposal to stimulate lending by community banks, says Fenig. In the speech, Obama proposed “that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat.”

The presence of increased liquidity in community banks would “help companies borrow money and finance equipment,” says Ralph Petta, the association’s interim president.