Stimulus Package Includes Depreciation

March 26, 2002
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Hopes are high in West Michigan that an economic-stimulus package allowing companies to accelerate depreciation on capital goods will provide the incentive needed to generate new capital investments, particularly for the ailing office furniture industry.

The Job Creation and Worker Assistance Act includes a three-year provision that accelerates depreciation on the purchase of capital goods from seven to five years, including an initial 30 percent write-off in the first year.

With the office furniture industry experiencing its worst downturn resulting in thousands of lay-offs locally, passage of the package is welcome news amid hopes that it will help to convince corporate America to start spending again.

“This might be the element that would really encourage them to make that investment,” Grand Rapids Area Chamber of Commerce President John Brown said. “It should change very favorably the economics of capital investments.”

The U.S. House on the night of March 7 passed a stimulus bill that includes the accelerated depreciation as well as a 13-week extension of unemployment benefits for people whose benefits have run out. The Senate followed suit the following morning and President Bush signed the measure on March 9, saying that it was necessary even as the economy shows signs of improvement.

“We’re seeing some encouraging signs in the economy, but we can’t stand by and simply hope for continued recovery. We must work for it,” Bush said in his March 9 weekly radio address. “We must make sure our recovery continues and gains momentum.”

U.S. Rep. Peter Hoekstra, R-Holland, called passage of the bill a “big win” for the struggling office furniture industry, which tends to lag economic indicators by about six months. Even with an improving economy, the industry needs help, Hoekstra said.

While consumer spending has remained healthy during the recession, corporate capital investments have fallen dramatically.

Hoekstra sees the bill as providing a “kick start” for a recovery in the office furniture industry as the broader economy rebounds. He and others hope the accelerated depreciation is enough to spur corporations that already were considering capital investment to now proceed with their plans.

“This is for those people who are right on the edge — ‘Can I buy today or should I wait?’ We want them to buy today,” said Hoekstra, whose legislative district has been hit hard by layoffs from office furniture manufacturers Herman Miller Inc., Haworth Inc. and Trendway Corp. and their suppliers.

“We need to get business investment going again,” he said. “This is something that is definitely needed for our part of the country.”

After industrywide shipments plunged 17.8 percent last year from 2000, or by $2.3 billion, the office furniture makers are expecting a subsequent 13 percent decline in 2002 before things pick up in 2003, according to their industry trade association.

A similar temporary accelerated-depreciation measure enacted in the early 1980s is credited with helping to pull the industry out of a sales slump, said Tom Reardon, executive director for the Business and Institutional Furniture Manufacturer’s Association. He’s hopeful the same thing will occur this time, although there’s no way to gauge how much of an impact the measure may have.

“We think it will have a positive impact. To what extent, you don’t know,” Reardon said. “But it’s another step in the right direction and we need every one of those we can get right now.”               

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