Vermeer CEO: Congress Must Revive Expensing Measure For Small, Midsize Firms

It’s no surprise that small and mid-size companies almost universally support the Congressional efforts now underway to renew a provision in the U.S. tax code called “Section 179 expensing” that expired last January. That longstanding provision permitted a small and mid-size company to treat capital investments in its business up to $500,000 as an expense against revenue for tax purposes in the year the investments occurred rather than limiting the company to the much smaller expense amount that is allowed under the tax code’s depreciation schedules.  Small and mid-size businesses support extending Section 179 expensing because reducing taxes in the year the investments are made reduces their taxes that year and thus increases their cash flow.  

Far more significant is the fact that the public also benefits greatly from Section 179 expensing because it encourages small and medium size businesses to make capital investments in their companies rather than sock cash away or spend it on consumable items. A policy that encourages capital investment is in the public interest because those investments are more likely to make a business grow than is saving or spending on consumable items, and business growth leads inevitably to new jobs and GDP growth.  Indeed, research by the National Association of Independent Business, the nation’s primary small business trade association, concludes that making Section 179 expensing permanent could both add 198,000 jobs and $18.6 billion in real GDP over a ten year period.

Importantly, however, smaller companies not only favor renewal of Section 179 expensing, they also support renewing a similar provision in the tax code called “bonus depreciation” that applies to large businesses. That longstanding provision allowed large companies to treat half of their capital investments as an expense against income in the year those investments occurred rather than limiting the expense deduction to the much smaller amount that otherwise would be allowed for that year under the tax code’s depreciation schedules.

While large businesses, such as those represented by the Business Roundtable, naturally support renewal of bonus depreciation for the same reasons that smaller companies support renewal of Section 179 expensing, small and mid-size companies support extending bonus depreciation as well since doing so would increase their opportunity to sell to large companies the equipment and software that makes up the added capital investments that large companies make as a result of bonus depreciation. 

Take our company, for example.  We are a mid-size manufacturing company with some 3,000 employees.  Among other products, we make trenching, drilling, and boring equipment used by large electric, water, and oil and gas utilities as well as large cable TV and telephone companies. Those customers purchase our products in order to lay pipelines and electric and communication cables.  If large customers invest more in their own pipelines and cable and telephone lines as a result of bonus depreciation, we benefit from an increased opportunity to sell more of the trenching, drilling and boring equipment we make.

In early August, the Senate Finance Committee advanced a $97 billion tax bill called the “tax extender” package that would renew several expiring tax provisions, including Section 179 expensing and bonus depreciation.  Many provisions included in the tax extender bill, including Section 179 expensing and bonus depreciation, were last signed into law in December 2014 and applied retroactively to January 2014, but then expired quickly thereafter in January 2015. So now, as we approach the same dilemma this year, some are trying to avoid making renewal of these important provisions an annual endeavor. 

There are several pending legislative vehicles to accomplish renewal of these important tax provisions for more than a single year – ranging from the two-year-long renewal in the Senate Finance Committee’s tax extender package and in a separate bill introduced by Sen. Debbie Stabenow (D-Mich.) to a permanent extension in bills introduced by Ohio Republican Rep. Patrick Tiberi (one dealing with Section 179 expensing and the other with bonus depreciation),  as well as separate bills offered by Sens. Pat Roberts (R-Kan.) and Michael Bennet (D-Colo.).  Former Vice Presidential nominee and Ways and Means Committee Chairman Paul Ryan (R-Wis.) seems amenable, looking to include some version of these renewal provisions in a more comprehensive tax bill, opening yet a third way to move this forward.

For decades, companies like Vermeer have leveraged technological advancements and pro-growth policies to develop innovative products.  But failing to further extend the Section 179 expensing and bonus depreciation laws – either through a comprehensive bill, a permanent extension or a shorter renewal – would curtail the investment value chain connecting large, mid-size and small businesses.   If American businesses do not continue to invest and improve, U.S. innovation will be slowed—something neither we, nor our customers, should accept.  Passing Section 179 expensing and bonus depreciation soon will allow businesses the predictability to make increased investments yet in 2015.

Andringa is CEO of Vermeer Corp.