Wow, what a news day. I can hardly keep up. So let's set aside for now the stories about fires in Belgrade and the heat under John McCain's collar. More deserving of your attention is the word out of Augusta that Maine may take back some of the economic stimulus offered by the U.S. Congress earlier this month in a bill designed to forestall recession.
Previous posts of mine (1/16, 1/24, 2/9) pointed out that most of the stimulus package is election-year fluff that does not get at the root of the problem. But there was one piece in there that might actually work: an accelerated depreciation schedule for businesses considering the purchase of new equipment. If you are a business owner, Uncle Sam wants you to make that investment now, not later. The incentive is a bigger write-off in the first year that the equipment is placed in service, resulting in lower taxable earnings, hence lower taxes for that year.
But now a spokesman for Governor Baldacci says, whoa, maybe Uncle Sam is willing to defer a small fraction of corporate income taxes, but not us. The governor points to a projected $200 million shortfall in FY2008 as a reason to "decouple" Maine tax rules from the new depreciation rules in the federal stimulus package. Uncle John wants you to pay your taxes now, and invest later. And how much are we talking about? Maybe $2.5 million this year, and another $20 million next year. Why, that's peanuts! We blew away $20 million just on that MainSail investment last summer.
Then there's the PITA factor (I will explain PITA in the weeks ahead). Here it manifests itself in the added complexity of computing two different depreciation schedules for the same piece of equipment. The bonus depreciation allowed on a federal tax return would have to be deleted from the state return, creating an accounting headache for this and subsequent years. Makes you want to rush right out and expand your business, doesn't it?
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