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USA TODAY June 16, 2003 page 5B

Small firms not jumping on new tax incentives

By Jim Hopkins USA TODAY

Small companies are not rushing to buy new equipment, despite President Bush's approval last month of tax incentives meant to spur such spending.

The $350 billion tax cut boosted to $100,000, from $25,000, the amount companies can write off annually on spending for computers, vehicles and other capital purchases.

But a survey out today shows small businesses have instead reduced spending plans -- depriving the weak economy of a much-needed boost. Just 28% of 588 small firms surveyed last month say they plan capital investments -- down from 30% in April, says the National Federation of Independent Business.

NFIB says the tax cut may have passed Congress too late in the month to affect the survey results. Still, the trade group cited studies showing the ''real driver'' of spending is whether firms have higher revenue. The survey found small-company optimism remains flat despite the end of major fighting in Iraq, rising stocks and other glimmers of economic strength.

Certainly, some firms are leveraging the tax incentive. Bruce Rothenberg will spend about $60,000 on PCs and high-speed printers for 18 employees at NetGroup Diabetic Services near Palm Beach, Fla. The PCs will replace 4-year-old computers.

But spending remains on hold for many of the USA's 5.8 million small firms because of:

* Weak revenue. Online retailer WickedCoolStuff.com in North Hollywood, Calif., would buy scanners and office furniture if sales, down about 18% from a year ago, were higher. CEO Brett Dewey wishes the tax cut gave more to the middle-class families who shop his site. That would give them more cash to buy his T-shirts, toys and comic books.

Overall, NFIB says revenue was down slightly among companies surveyed, crimping their big-ticket spending. ''A cheaper truck that has no deliveries to make is not a good investment,'' says William Dunkelberg, the group's chief economist.

* Tax cut limits. VoiceLog in Gaithersburg, Md., wants to buy $600,000 in telephone switches, software and other telecom equipment. But the tax cut caps capital spending at $400,000 to get the full benefit of the faster write-off.

So VoiceLog, which helps consumers switch phone companies, may instead trim spending -- the opposite of what Bush and Congress intended, says President Jim Veilleux.





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