Tax break hasn't spurred spending

By Jim Hopkins
USA Today

Small companies are not rushing to buy new equipment, despite President Bush's approval last month of tax incentives meant to spur such spending.

The $350 billion tax cut boosted the amount companies can write off annually on spending for computers, vehicles and other capital purchases to $100,000 from $25,000.

But a survey out Monday shows small businesses have reduced spending plans instead, depriving the weak economy of a much-needed boost. Just 28 percent of 588 small firms surveyed last month say they plan capital investments, down from 30 percent in April, says the National Federation of Independent Business.

NFIB says the tax cut may have been passed by Congress too late in the month to affect the survey results. Still, the trade group cited studies showing the "real driver" of spending is whether companies have higher revenue. The survey found small-company optimism remains flat despite the end of major fighting in Iraq, rising stocks and other glimmers of economic strength.

Certainly, some companies are leveraging the tax incentive. Bruce Rothenberg will spend about $60,000 on and high-speed printers for 18 employees at NetGroup Diabetic Services near Palm Beach, Fla. The PCs will replace 4-year-old computers.

But spending remains on hold for many of the nation's 5.8 million small companies because of:

• Weak revenue. Online retailer WickedCoolStuff.com in North Hollywood, Calif., would buy scanners and office furniture if sales, down about 18 percent from a year ago, were higher. CEO Brett Dewey wishes the tax cut gave more to the middle-class families who shop his site. That would give them more cash to buy his T-shirts, toys and comic books.

Overall, NFIB says revenue was down slightly among companies surveyed, crimping their big-ticket spending. "A cheaper truck that has no deliveries to make is not a good investment," says William Dunkelberg, the group's chief economist.

• Tax cut limits. VoiceLog in Gaithersburg, Md., wants to buy $600,000 in telephone switches, software and other telecom equipment. But the tax cut caps capital spending at $400,000 to get the full benefit of the faster write-off.

So VoiceLog, which helps consumers switch phone companies, may instead trim spending — the opposite of what Bush and Congress intended, says President Jim Veilleux.