Will IT Be a Bonus Baby?

The expiration of a tax break could touch off an IT spending spree.
CFO StaffMarch 16, 2004

While capital spending has been recovering for the past two years, it still lags the levels seen in 1999 and early 2000. A tax break that expires at the end of this year may help alleviate that.

Written into the Jobs and Growth Tax Act of 2003 (HR 2), it piles “bonus” depreciation onto the normal schedule that governs capital spending, allowing big first-year write-offs for money spent on IT and other assets brought online by December 31, 2004.

That’s the date the provision expires, which is why many experts predict a year-end buying spree. Given that IT accounts for a sizable chunk of capital spending at companies large and small (and in fact a separate provision in the act gives an additional depreciation break to small companies), it’s no wonder that Merrill Lynch economist David Rosenberg told the Baltimore Sun late last year that he expects the tax break to be “wildly stimulative” this year, and compared it to a potential Y2K.

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But the break applies to a range of items other than IT, everything from security systems to office equipment. Some experts suggest that with software and hardware continually improving while dropping in cost, companies may look to leverage the tax break on other areas.

The Congressional Budget Office expects the act (which includes many provisions beyond the bonus-depreciation perk) to increase the federal deficit by $350 billion over 10 years. Supporters argue that it will create jobs.

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