Recent data suggests that for the remainder of the year – and perhaps longer – economic growth will be modest at best. That is why Congress should do everything possible to encourage companies to invest, expand, and ensure that the economy doesn’t stagnate. Yet inexplicably, Congress has recently let a series of laws expire that did just that. It should correct this mistake by moving quickly this fall to reinstate those laws.
When a company makes new capital investments in its business, it traditionally was allowed to account for depreciation in each year’s taxes, writing off a small portion of the investment each year over the course of about a decade or more. In 2008, lawmakers from both parties tried to jump start a sagging economy: They passed laws letting small companies expense up to half a million dollars of their capital investments in the year the investments were made (known as Section 179 expensing), and letting larger companies expense half their capital investments in that first year (called “bonus depreciation”).
The laws were a stunning success and were renewed every two years– until this year when they expired. Congress should act quickly this fall to renew these two expired laws in order to benefit our still-sluggish economy by encouraging businesses to make new capital investments in their companies rather than either hold onto cash or spend money on consumable items.
New capital investments lead inevitably to new jobs and GDP growth – just what today’s still struggling economy needs. In fact, IRS data suggests that capital investment nationwide could be 25 percent higher than it would be without bonus depreciation and Section 179 expensing.
Small businesses like Penthera, the startup software development and licensing company I head, obviously support a law permitting small companies to write off the cost of capital investments more quickly. But small businesses also support allowing big companies to write off a large share of their own capital investments more quickly since doing so gives smaller companies opportunities to capitalize on the big guys’ new capital investments by selling more product to those larger companies.
Take Penthera: Our first product is Cache&Carry, a platform allowing video distribution companies to manage the secure download and storage by consumers of TV shows, movies, and other videos from the Internet. Penthera’s customers include the leading U.S. cable operators, TV networks, movie channels and direct to consumer content aggregators. More investment by those companies in their programming and distribution networks has a direct, positive effect on Penthera’s business, as we have more opportunities to utilize our Cache&Carry system.
Legislation making bonus depreciation permanent has been introduced by Sen. Pat Roberts (R-Kan.) and Rep. Patrick Tiberi (R-Ohio), while Rep. Tiberi and Sen. Michael Bennet (D-Colo.) have offered bills making Section 179 expensing permanent. At the very least, Congress should pass measures offered by the Senate Finance Committee and Sen. Debbie Stabenow (D-Mich.) extending bonus depreciation and Section 179 expensing for two more years.
Passing one of these bills this fall should be a no brainer since failing to do so risks leaving small and large companies alike with a lower return on investment and a lower prospect for growth and since renewing these two laws has substantial support by Republicans and Democrats in both the U.S. Senate and House of Representatives.
Michael Willner is the CEO of Penthera Partners.