Users: Tax Breaks Can't Jump-Start IT Buying

Stimulus bill could return to Congress

WASHINGTON—Congress may try again in 2002 to pass an economic stimulus bill with tax incentives to encourage companies to buy IT equipment. But the measure, which lawmakers failed to adopt before recessing in December, is far from a cure-all for the technology sector's ills, said corporate IT managers.

The stimulus package, approved in the House but killed in the Senate, offered a one-time 30% depreciation bonus in the first year of eligible IT purchases. Technology trade groups maintain that the bonus would have encouraged corporations to make equipment purchases that they might otherwise postpone because of economic conditions as well as open the legislative door to a permanent shortening of the depreciation schedules to two or three years.

Corporate IT managers and analysts said the bonus would have been helpful but wouldn't have led to a new tech spending boom. "It's not going to be some fancy accounting" that drives business IT decisions, said Patrick Thompson, CIO at Turner Industries Ltd. "Businesses are going to buy because they need it."

Nonetheless, Thompson, whose Baton Rouge, La.-based firm is a top industrial construction company, said the bonus "will certainly help, and without it, it will hurt IT spending."

Companies presently can write off IT purchases over five years, a depreciation schedule that critics say can last longer than the equipment.

The depreciation bonus could be revived when Congress resumes work in February. Under the failed House plan, if a computer cost $1,000, the purchaser would be able to write off 30% of the cost in the first year, or $300, plus 20% (the normal depreciation spread over five years) of the remaining $700.

Analysts said the depreciation bonus by itself won't reinvigorate IT spending. "For there to be a resounding rebound in IT spending, that will take a recovery in corporate profits," said Kevin White, an economist at IDC in Framingham, Mass. That recovery should gain momentum around mid-2002, he said.

"The paralysis that we're experiencing today is going to take other types of measures to get it unfrozen," said Tom Willmott, president and CEO of Aberdeen Group Inc. in Boston. One such measure could be a capital loan program that would keep companies from having to spend precious cash resources on IT equipment and applications.

Willmott said companies facing layoffs will be carefully weighing risks and return on investment over the benefits of accelerated depreciation.

ROI is key, said Jim Prevo, CIO at Green Mountain Coffee Inc. in Waterbury, Vt. "Personally, I think the tech sector needs to focus more on real in-my-pocket return on investment rather than parlor tricks with the tax code," he said.

Hardware's Hurting

Copyright © 2002 IDG Communications, Inc.

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