Congress Cares?

By Lloyd Graff

Congressman Francis Underwood from the show, “House of Cards”

Man plans. God laughs.

A client of ours just had a huge fire that wiped out much of his capacity. He is scrambling to pull things together overnight to service his customer base. The insurance adjusters dither while he awaits the settlement.

Another client jumped into the machinery market because he landed a big new account that wants parts in September. He’s buying a $100,000 machine and new secondary equipment. It had not been in the budget finalized in April, but a million dollar job was not going to be missed for want of a machine to run it properly.

In Washington, the bonus depreciation law is up for debate again, behind and in front of closed doors. Code name – Section 179. The trade associations I belong to, the Precision Machined Products Association (PMPA) and the Machinery Dealers National Association (MDNA), have their law firms and lobbyists out buying drinks and advocating hard for the resuscitation of the expired law. It’s why we hire lobbyists and pay them $500 per hour to schmooze staffers and channel money to campaigns. But I have to wonder, in the end, how much do the incentives really change behavior?

In our machinery business we expected a rush of business before Section 179 expired last year. But I can attribute to it only one sale, a ridiculously cheap 1-1/4″ RB-8 National Acme, that a client (who happened to have an accounting background) rushed through because of the tax incentive.

I know this dissing of the catechism of tax benefits for business is Obamaesque blasphemy, but I really think it is true. People buy capital equipment generally only when they have a pressing need for it. Without a pressing need, they may buy a smaller item like a hardness tester, or a cleaning tank. At Graff-Pinkert we rushed to buy a Graymills cleaning machine last year and a backup generator the year before to get the convenient write-offs. They were purchases we could have lived without, but the ability to write them off against income did play a role in our timing and was an impetus to pull the trigger. If you multiplied our cleaning tank and generator buys through the whole economy it would be significant.

Section 179 is not part of the backbone of capital spending in the United States. It will not have a pivotal effect on our machine tool business. For big companies it will barely ripple the water. On the margins, the last-second buys of a clutch, a repair part, a set of bearings, or a generator, magnified by thousands of little buyers, is significant. It’s worth fighting for in Washington, but if we don’t get it, there’s still next year for another schmooze at it.

Question: Do feel like your congressman cares about you?

Lloyd Graff is Owner of both Today’s Machining World and Graff-Pinkert & Co.

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12 thoughts on “Congress Cares?

  1. AvatarMisterchipster

    The USA has the highest corporate tax rate in industrialized world, section 179 is only a small flea on the pile of crap we call a tax code. The best advice I have is to be careful that the tax tail does not wag the dog!

     
  2. Avatarrobert

    I would buy a milling machine for the tax write off if I could guarantee it would be paid off within a year or two, otherwise I cannot take the risk of capital investment the way the economy is dragging, seemingly with no end in site.

     
    +1
  3. AvatarJeff

    We would buy a few new vehicles, some other forming machines, finish off some new offices and such if the 179 comes back. I would say our congressmen and women care each time they are up for a vote. Otherwise, they live in a Washington bubble that has no real liking to the real world in manufacturing.

     
    +1
  4. AvatarDoug

    Lloyd, I think you’re missing the most important aspect of Section 179 or any accelerated depreciation offered. There have been times I have taken advantage of accelerated depreciation and times I haven’t. What I like is to have the choice. If I get a new large order that requires new equipment, I am more likely to use it if the continuation of the order is questionable. This way the additional expense is available to offset what may be a short term increase in profit. If I am just replacing worn equipment and not experiencing some large increase in volume, then I would be more likely to push the expense out and not use section 179. It is just another tool, one I would rather have than not. With the highest corporate income taxes in the world, it seems like a small thing to offer.

     
  5. AvatarVal Zanchuk

    Most of Congress has no clue of what’s involved in running a business, let alone running a manufacturing business. If they did, there would be a permanent section 179, a permanent R&D tax credit, and a tax code that enhanced manufacturing in the US, leading to stable growth and higher employment. Instead, we have a tax code swamp, ready to suck you down in some tax related quicksand. We waste a lot of energy trying to make it through the swamp unscathed.

    Having a bunch of lawyer legislators overseeing the industrial policy of the US does not work. There may be real concern on the part of many of them, but they have no perspective on what to do. It’s like getting an MBA. You are taught to run a business by a bunch of business theorists who have never had to make a payroll. How can they possibly teach you how to really run a business when they haven’t done it themselves?

     
    +3
  6. AvatarDoug

    They are all career politicians, all they care about is their parties, and reelection. If you cross your party you loose their support and the next election. It is time for us to vote all incumbents’ out of office and enact term limits in both the houses. What ever happened to public office being a public service, you do it to better your community. I could go on for ever, but we all know that we the people are the real problem, because we would stand up and do the right thing. The two parties have us like lemmings at the cliffs edge. So quit following and start leading or at least thinking for yourself.

     
    +3
  7. AvatarGloria

    Many of those in Congress have lost touch with the needs and issues of their constituents.
    It seems as though they only think of us when they need our vote to keep them in office.

     

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