Editorial: Economic Smelling Salts
This Editorial appears in the Feb. 18 print edition of Transport Topics. Click here to subscribe today.
Everyone is putting a lot of stock in the economic stimulus provided by a government package of tax rebates and incentives, and eagle-eyed economists and accountants are combing the legislative text for opportunities.
As Bob Costello, American Trucking Associations’ chief economist, says in the plainest language: Anything that spurs the economy is good for trucking.
Millions of taxpayers will get checks from Uncle Sam, ranging from $600 to $1,200, and if the mainspring of this mechanism works as hoped, people will rush out and buy new TVs, refrigerators, bowling balls, bathrooms and what-have-you. One would expect, in turn, a surge of some size in the demand for freight services. And when freight tonnage increases, the industry thrives.
That’s how a strong whiff of new money could help clear the economic mindset (unless too many consumers decide to spend their windfall on reducing debt).
The idea is also to ramp up buying at the business level. So the package allows businesses to write off 50% of the cost of capital equipment purchased in 2008.
The positive implications of capital-expenditure incentive would be self-evident if all the currently available trucks and trailers were earning revenue for carriers. But that’s not the case, according to another trucking economist, Martin Labbe. He recently told Transport Topics that, overall, fleets have more equipment than they can use at the moment. Thus, Labbe expects any bump in truck and trailer sales to come from truckers on the fence about equipment purchases. The package’s depreciation relief could push some into the buying column.
But it’s not just about hardware. ATA’s Information Technology & Logistics Council last week touted the value of the stimulus package’s bonus depreciation on IT expenditures. The council developed a hypothetical worksheet, showing how a $500,000 investment in information technology in 2008 could be leveraged to produce a $14,000 tax savings.
Consumer rebates will start to flow in May, and the biggest checks will go to people with the lowest income. That is why Bob Costello is not worried about consumer decisions — the money will get spent on goods and services. And he thinks the stimulus will do its part in pushing the U.S. economy out of the mild recession it is in now and back to moderate growth (Costello forecasts 2.2%) in the second half of 2008.
