On Record: A booster shot?

American Rental Association officials were smiling at the timing: President Bush signed the Economic Stimulus Act of 2008 right in the middle of their trade show, typically a high volume buying show for rental dealers across nation.

There is a lot in the legislation for equipment buyers to grab on to, including an additional first-year depreciation of 50 percent of the purchase price of any new machines you buy and place into service this year. In addition, the act also significantly increases Section 179 small business expensing levels for 2008 – from $128,000 with a $510,000 phase-out threshold to $250,000 with an $800,000 threshold. (For specifics, go to www.depreciationbonus.org.)

It’s telling, however, that the Associated Equipment Distributors, enthusiastic promoters of the 2002-04 depreciation bonus, have a milder reaction this time around. While acknowledging that historically depreciation bonuses have prompted new equipment purchases, Christian Klein, AED’s vice president of government affairs and Washington counsel, says, “Contractors are a rational bunch and they’re not going to buy equipment if they don’t have work. That’s why we think more should be done on the economic stimulus front to increase demand for housing and bolster construction activity.”

Specifically, AED is promoting a “3-2-1” housing proposal in addition to increased infrastructure spending. Conceived by AED’s equipment distributor membership during its annual meeting in January, 3-2-1 would put a $3,000 tax credit in home buyer’s hands this year, plus a $2,000 credit in 2009 and a $1,000 credit in 2010. “This would stimulate demand for residential real estate, which would in turn push up home values and boost consumer confidence,” Klein says.

AED’s proposal points out a gaping hole in the stimulus package: it contained little that directly addressed the most pressing economic trouble spot – housing starts, which dropped 30 percent in 2007. Incensed at this, the National Association of Home Builders made an unheard-of move and suspended all of the money it donates to members of Congress “until further notice.”

NAHB isn’t the only unhappy player. The Center on Budget and Policy Priorities says the stimulus package will cause 23 states – with tax mechanisms directly tied to federal tax codes – to lose a collective $1.7 billion in corporate and individual revenues this year. One irony for construction: Colorado’s $54 million hit will directly affect highway and capital improvement projects.

Whether or not the stimulus package will be the “booster shot” to the economy that President Bush contends, it will be interesting to take stock at the end of this year on what the final tally is for our industry. “One possible benefit is that it may prevent a drop off in equipment buying,” Klein says. Let’s hope it’s not what Alabama Senator Richard Shelby called it: “Pouring a glass of water in the ocean and hoping it will make a difference.”