Congress Drops Tax Break; Incentive Boosted 2011 Sales

Congress last week dropped a proposed extension of a tax break, credited with dramatically boosting truck sales in 2011, from a bill that extends the federal payroll-tax holiday, but a Democratic lawmaker said the tax incentive could be passed later in the year.

President Obama included the tax break, known as bonus depreciation, in his 2013 budget proposal unveiled last week. Although a House and Senate conference committee dropped the item from the payroll tax measure, Rep. Earl Blumenauer (D-Ore.), a member of the House Ways and Means Committee, said there would be other chances.

“There are lots of moving pieces for tax provisions this year. There’ll be other vehicles leaving the station, so I’m anticipating that if it doesn’t get in here, it’s not the last word,” Blumenauer told Transport Topics on Feb. 15.

Bonus depreciation allowed businesses that bought new equipment in 2011 — anything from trucks and trailers to machines and computers — to depreciate 100% of the purchase price in that tax year.

“We had more people come in for the biggest year-end spike in sales we’ve seen in more than three years,” said Don Emerson, president of FMI Trucks Sales & Service, a medium-duty dealership with two locations in metropolitan Portland, Ore.

Nationally, December sales of heavy-duty trucks were up 78% over the same month in 2010, according to data from WardsAuto.com, and dealers gave bonus depreciation  much of the credit.

“Oh, my God; it was wonderful,” Richard Witcher, chairman of American Truck Dealers, said of the bonus depreciation break that expired Dec. 31.

Sales rose last year at Minuteman Trucks Inc., the Walpole, Mass., dealership Witcher and his brother, William, own. They used the tax break to help underwrite capital investments to expand their sales, service, parts and lease operations, Richard Witcher said.

Bonus depreciation explains why Con-way Inc. pumped $284 million dollars in capital expenditures — $240 million of it for tractors and trailers — into the economy in 2011 compared with $162 million in 2010, said company treasurer Mike Morris.

“In 2011, we brought in about 2,000 tractors and about 1,600 trailers,” Morris said. “It helps us make these accelerated investments in our fleet . . . more rapidly than we might otherwise be able to do with our normal cash flow.”

Morris said the tax break helped Con-way buy the most up-to-date rigs, meaning that, in an anemic economic recovery, the carrier sustained and increased its competitiveness in safety, service, fuel economy and maintenance at the same time it helped truck manufacturers ramp up production.The 100% bonus depreciation dates to late 2010 and a tax and budget agreement between Congress and the Obama administration.

Until September 2010, equipment investments could be depreciated only up to 50% the first tax year. The remaining 50% had to be taken in subsequent tax years.

To stimulate investment and help manufacturers struggling in the latest recession, Congress raised the first-year depreciation break to 100% for purchases made between Sept. 8, 2010, and Dec. 31, 2011. On Jan. 1, the 100% single-year depreciation reverted to 50%, but businesses, truck makers and dealers are pressing Congress to extend the 100% break through 2012.

The bonus depreciation has proved so popular that the U.S. Treasury estimated it will cost taxpayers $55 billion in the 2011 tax year, but Treasury officials explained when the program began, however, that taxpayers would recoup much of the loss in subsequent years when corporations do not have depreciation to write off.

“It doesn’t change the total amount of deductions across the life of a tractor,” Con-way’s Morris said. “It just shifts deductions forward in time.”

More than 100 business and trade associations signed a letter Feb. 2 asking Congress to extend the 100% bonus depreciation.

“If you do the math . . . these organizations . . . represent millions and millions of workers,” said Bailey Wood, spokesman for the truck dealers, “and that’s the underlying aspect . . . you help everybody on this list and their employees, which ultimately is good for the economy.”

Bills passed in the U.S. Senate and House of Representatives to extend the payroll tax cut included bonus depreciation, but the House bill also had a provision that would have required approval of the Keystone XL pipeline from Canada to Louisiana.

Working with the Obama administration, the House-Senate conference committee agreed Feb. 15 to extend the payroll tax measure but also to cut both the Keystone pipeline and bonus depreciation provisions.

The depreciation program has helped Oregon, where unemployment reached 14%, to recover from the recession, Blumenauer said. Daimler Trucks has a factory in Portland and last year recalled workers to the assembly line to meet growing demand.

Emerson, the Portland truck dealer, said profitable small-business owners in western Oregon went on a truck-buying binge during the fourth quarter of 2011, fueled in part by the approaching expiration of the 100% tax break.

“People won’t buy trucks they don’t need just to avoid taxes, but if they need them anyway, why not?” Emerson said.

Associate Editor Jonathan Reiskin contributed to this story.