Operators Welcome Depreciation Bonus

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In a likely financial windfall for cable and high-technology companies, the economic stimulus package signed into law by President Bush on March 9 included a 30 percent depreciation bonus to encourage firms to invest in new infrastructure and equipment.

The provision, worth an estimated $97 billion, offers businesses a 30 percent tax write-off on equipment purchased over the next three years.

Normal depreciation schedules still apply to the remaining 70 percent of an item's value.

"It will spur capital expenditures for new, advanced equipment and technology," said proponent Sen. George Allen (R-Va.), chairman of the Senate's High-Tech Task Force. "This will create and save more jobs for working men and women involved in producing, creating, fabricating or manufacturing such capital equipment."

Last week, the stimulus bill — dubbed the "Job Creation and Worker Assistance Act" — passed by margins of 417-3 in the House and 85-9 in the Senate.

Due to their reliance on frequent capital improvements, most cable companies will probably enjoy substantial cost savings under the 30 percent write-off, said National Cable & Telecommunications Association spokesman Marc Osgoode Smith.

"This should have very positive benefits on investments," Smith said. "It [will] make it more economical and efficient to invest and upgrade."

Telecom executives were also upbeat.

"We are ready to take advantage of this incentive," said Verizon Communications senior vice president Michael Boland. "It gives a green light to more investment, and more investment means more jobs across the industry."

Disputes over the tax credit's duration were a key sticking point as House and Senate negotiators struggled to reach a compromise.

Critics of the final package — including the eight Democrats and one Republican who voted against it in the Senate — argued that while a temporary, one-year tax credit might have helped the economy, the three-year plan does not give firms an incentive to invest immediately.

The 30-percent depreciation bonus was unlikely to affect cable operators' decisions about when and how much to invest in upgrades and new infrastructure, Smith acknowledged.

"I didn't get any sense that this is something that would accelerate infrastructure improvements," he said. "This just continues the encouragement."

Smith also said the issue had not been a top legislative priority for most cable companies. "We're kind of side beneficiaries on this," he said.

Some groups that opposed the measure said they were worried Congress would extend it before its scheduled lapse in September 2004.

States News Service.

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