Obama Calls for Expanding Business Expensing

President Barack Obama visited a Maryland factory Friday and promoted his proposal for allowing businesses to deduct the entire cost of their purchases of new equipment through the end of next year.

During a visit to Stromberg Metal Works in Beltsville, Md., Obama talked about how expensing provisions were already helping small businesses in the month since the Small Business Jobs Act was signed into law (see Obama Signs Small Business Jobs Act). He noted that one provision in the bill has supported nearly $3 billion in new loans to more than 5,000 small businesses across the country in that time.

Another provision in the bill accelerated $55 billion in tax relief for businesses that make job-creating investments over the next year, including by extending a provision in the Recovery Act called business expensing, or bonus depreciation, Obama noted.

“Now, this is a pretty simple concept,” he said. “What it does is allow a business like this one to immediately deduct 50 percent of the cost of certain investments like new equipment. And I was talking to Bob [Gawne of Stromberg Metal Works] and he says he’s got to buy a new piece of equipment for this plant basically every year. The reason this company is able to compete against low-wage countries, against non-union workforces, is because it’s got better equipment and it’s got more skilled, better workers. That’s the reason that it’s succeeding.”

Obama then went on to describe his proposals for extending 100 percent bonus depreciation to businesses large and small through the end of next year. He originally made the proposal last month, along with proposals for extending and expanding the research and experimentation credit and providing a large increase in infrastructure spending (see Obama Proposes Expanding Research Credit).

“What I want to do to accelerate this recovery is to allow businesses of all sizes to immediately deduct the entire cost of these investments — 100 percent — all next year, through the end of 2011,” he said Friday. “And that means that business owners like Bob who decide to upgrade their plants, upgrade their equipment — that means that they are able to write off immediately that depreciation in one year. And that means that they're going to have additional money to invest in workers and in other plants and equipment.”

Obama discussed how a business like Stromberg Metal Works might benefit from the bonus depreciation proposal.

“Let’s say that a similar business is thinking about buying $1 million worth of additional shop equipment next year,” he said. “Typically, the business might only be able to deduct the value of that new equipment over the course of several years. Under this proposal, a business like this one would be able to deduct all $1 million next year. That accelerates hundreds of thousands of dollars in tax cuts — real money that business can use to expand or hire new workers.”

Obama said the proposal was not “a shot in the dark.”

“This is a proposal that works,” he added. “A new report from the Treasury Department estimates that it will accelerate $150 billion in tax cuts for 2 million businesses, large and small, around the country. It would temporarily lower the average cost of investment by more than 75 percent for companies like Stromberg, creating a powerful new incentive for businesses to invest more right now — perhaps about $50 billion — which will generate more jobs and more growth. So this is a good idea. It’s a proven idea. It’s an idea that will allow more equipment to be purchased and eventually more folks to be hired. And it will put a dent in the jobless rate that we’ve got to keep on working on because it’s way too high right now.”