Bush Plan to Increase “Expensing”: An Environmental and Financial Boon to Small Business

Bush Plan to Increase “Expensing”: An Environmental and Financial Boon to Small Business

The Bush Administration's economic stimulus proposal to increase "expensing" -- the amount small business can write off for new equipment purchases -- could represent a huge tax break to buyers of big, gas-guzzling SUVs. We can hope that the adverse reaction to this provision that's erupted in the press will lead Congress to remove this possibility from any legislation that's finally enacted.

But there's another side to the story. This is the huge environmental boon that would be created if the nation's 24 million small businesses used this tax break to replace old, polluting, and inefficient equipment with new, clean, and more efficient equipment. Small business owners who choose to do so will gain another big break: lower energy bills over the long term -- the opposite of what will happen if they buy a fuel hog.

Currently, small businesses are allowed to expense $25,000 per tax year. Bush would triple the dollar amount of equipment purchases small businesses can immediately deduct, raising it to $75,000. (Democrats in Congress also advocate an increase in expensing to $50,000 in 2003, and they would allow a 50% bonus depreciation for business investments.) The Bush administration says its proposal would stimulate $16 billion in new equipment purchases by small businesses over the next ten years.

Benefits to small business and the environment

Small businesses consume 48% of all electricity and 39% of all natural gas used for commercial and industrial purposes in the U.S. One-third to one-half of all this energy is wasted through needless inefficiency. Overall, small businesses could save themselves billions of dollars a year by becoming more energy efficient.

Restaurants, for example, are both highly intensive and highly inefficient users of energy. Typically, they operate on low margins of profit. Here's the payoff. By cutting energy use by 20%, a typical restaurant can increase profits by one-third!

To secure this profit, restaurant owners could use the expensing tax break to invest in energy-efficient commercial refrigerators and freezers that cut energy use almost in half. Also available are new and highly efficient fryers, griddles, steamers, and hot-food holding cabinets.

Environmentally speaking, this is a big deal. There are approximately 858,000 restaurants in the U.S., and if all of them reduced their energy consumption by 20%, it would slash CO2 emissions by more than 21 million tons per year. This is equivalent to removing 3.6 million cars from the road or planting 5.7 million acres of trees.

Renewable energy technologies are covered too

The proposed expensing increase would also apply to small-business purchases of solar technologies that generate electricity, heat or cool a structure, provide hot water, etc. The plus here for small businesses is that these small-scale, renewable-energy technologies can provide power when brownouts occur or if prices soar. There are, for example, various cost-competitive solar water heaters suitable for many small businesses, such as cafeterias and laundries.

In addition, the tax write-off would greatly stimulate the fledgling industries in energy efficiency and renewable energy -- provided the word gets out to small business owners and they know where and how to capitalize on the opportunity this new proposal would offer.

A good way to get the word out would be to make sure the new provision covers any small business purchase Energy Star equipment. The Energy Star label identifies hundreds of presently available, cost-competitive energy efficient office and consumer products. At present, some but not all Energy Star products are covered by the expensing provision. For example, HVAC systems -- heating, ventilation and air conditioning -- are not covered and they should be.

Obviously, investment flowing in this direction would also benefit the many small businesses that design and manufacture energy-efficient appliances, lighting products, control systems, solar and wind power systems, advanced industrial processes, and other energy technologies. Small firms also dominate the business sectors that sell, install, and service the nation's lighting, heating/air-conditioning, solar, and other energy-consuming equipment.

So chances are the solar water heaters mentioned above were conceived and designed by a small-business innovator. Moreover, it's likely that they are produced by a small manufacturer and marketed by a small business. Then, to complete the cycle, it's also likely that such water heaters will be installed and serviced by other small businesses.

What a great opportunity to spread this tax break around! This would really stimulate the economy while benefiting, not harming, the environment.

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Byron Kennard is executive director of the Center for Small Business and the Environment.

January 2003