In the two economic stimulus packages bouncing around Congress, the items corporate finance executives are likely to care most about are bonus depreciation and the tax rebates individuals would get, according to a comparison by accounting firm Grant Thornton.
Bonus depreciation would provide businesses with a tax incentive to increase capital spending this year: it would allow them to depreciate, for tax purposes, more of an asset’s cost up front. Under the House stimulus plan, 50 percent of an asset’s cost could be expensed in the first year, but in the Senate plan, the same portion is spread across two years, with 25 percent allowed to be expensed in each.
The House option is more generous to companies, according to Mel Schwartz, a partner in Grant Thornton’s national tax office. “The faster you can cover it, the lower your after-tax cost of buying a property,” says Schwartz. A lower after-tax cost would boost a company’s return on investment and could encourage more spending, he explains.
Although the Senate plan may seem less generous in terms of bonus depreciation, it does allow for businesses suffering losses to reclaim taxes previously paid; the House bill does not. The Senate also offers incentives to energy companies, providing nearly $6 billion in tax breaks to jumpstart renewable-energy programs. “If you have a company in that business, it’s good news,” says Schwartz.
Tax rebates for individuals would also benefit companies, although those benefits will depend on the appeal of a particular company’s products.
The House proposed a rebate of at least $300 for any individual earning a minimum of $3,000 in 2007. Those earning less than $75,000 could get a rebate of up to $600, depending on the amount they pay in taxes. The rebates would be reduced by 5 percent of adjusted gross income that exceeds $75,000, according to the House bill.
The Senate rebate is considered more generous, offering almost everyone a $500 rebate as long as they earn between $3,000 and $150,000. That plan would cost more than $190 billion over two years, compared with the $150 billion the House is proposing.
“They’re going to put $150 billion in circulation that was not in circulation,” says Schwartz, adding that companies will be hoping consumers will spend their rebates liberally — and on their products. “How much of my stuff will consumers buy?” they might well be asking, he says.