High-tech trade groups in the US are hopeful that a government
economic stimulus package, due today (Tuesday), will include an
expanded depreciation bonus that could encourage IT managers to buy
hardware and software.
A depreciation bonus allows companies to write off more of a
purchase in the year it is made. The US Congress approved a 30%
depreciation bonus last year, but industry groups, such as the
Information Technology Association of America (ITAA), have urged
that it be raised to 50%.
The depreciation bonus applies to any equipment, not just hardware,
from the high-tech sector. But hardware, software and services
spending declined 5.2% last year after a 5.4% drop in 2001,
according to IDC, making depreciation an important issue for tech
groups.
The bonus "might prompt a company to upgrade" software or equipment
"earlier rather than later", said Bartlett Cleland, an ITAA policy
expert. But it would also bring depreciation schedules in line with
the real world of rapid upgrades, he said. Depreciations are
usually spread out anywhere from three to seven years, sometimes
longer then the equipment is even in use.
The 30% depreciation set by Congress remains in effect until
September 2004. And, while IT spending is forecast to rise this
year, IDC economist Kevin White said the increase has more to do
with economic improvements and corporate profits than any tax
break.
IDC is expecting a 4.4% increase in US IT spending this year, to
$383bn (£238bn). Another research group, Aberdeen Group, has
forecast a 4% increase worldwide in IT spending.
Abderdeen chief research officer Peter Kastner said that while the
depreciation bonus would not hurt IT purchasing, the two-year
window available for taking advantage of the bonus might be
prompting some companies to delay purchases until they are certain
of economic improvements. Even so, he added, firms are also
reaching a point where they can no longer put off upgrades.
Analysts and trade group officials are unsure whether the 30%
depreciation bonus has helped IT spending - just yet.
"It's too soon for any of those forecasting numbers to show that,"
said Caroline Graves Hurley, a policy expert at AeA, formerly the
American Electronics Association. "But I do think there has been a
sluggish response."
She said the reason for the slow response could be because
companies are waiting until the depreciation bonus is closer to
expiry before taking advantage of it. There may also be many IT
buyers who are unaware of the tax break, she added.
It was uncertain whether President Bush would include an expanded
depreciation bonus in the stimulus package, said Ralph Hellman,
senior vice-president of government affairs for the Information
Technology Industry Council.
Hellman was, nonetheless, hopeful that a bonus would appear in the
legislation and said a number of bills seeking anything from a 50%
bonus to 100% bonus are in the works.