(May 5, 2003) — As the U.S. economy slowly recovers, manufacturers could use a tax break to invest in new technology. They need help to buy machinery, robots and computer systems to help factories run more efficiently.
Some free-market economists disagree. They make a good point: What's really needed is not business tax breaks — not when factories already have too many machines sitting idle. Instead, they say, what's needed is more consumer demand that, in turn, will increase the stagnant rate of factory utilization and cause plastics processors and other industrial segments to resume buying equipment.
But I think the time is right, this year, for a targeted, temporary tax incentive. We need to upgrade our nation's factories in the face of brutal competition from China and other low-wage countries. The United States already has lost 2 million factory jobs since the beginning of 2001.
I can hear plastics machinery makers reading this and shouting “Amen!” The U.S. market is coming up on three straight lousy years, and the plastics machinery sector here is reeling. It's reaching crisis proportions. Shipments are down 40-50 percent from the happy days of the late 1990s and early 2000.
The pain is not limited to injection molding machines. These days, sales of all types of industrial machinery are down. Consumers keep spending. Businesses are the tightfisted ones — one big reason why the U.S. economy is still struggling.
I'm not proposing a bailout package for machinery makers. Far from it. This would be a limited-time offer, focused on machinery and factory computer systems.
The Bush administration already has made some moves. The 2002 stimulus package included a faster schedule for writing off depreciation for new capital investments. This year, Bush proposed tripling the expensing allowance for equipment purchases by small businesses, to $75,000 (which really is not enough for any type of major plant upgrade).
But as NPE 2003 nears, it's clear that the U.S. plastics industry faces a Catch-22. Processors have to improve, especially by making factories more automated, to survive the great China exodus. They're interested. In June at NPE they'll be in the showroom. But with profits pinched, they don't have loads of money to spend. So they need a little nudge.
For sure, a special tax break to encourage technology spending is not going to resurrect the U.S. plastics industry single-handedly.
As I said, the one good argument against more measures to spur capital spending is the nation's anemic capacity utilization rate for manufacturing. In plastics processing, after moving above 80 percent last summer, utilization slipped to 79 percent and has pretty much stayed there for months. Eighty-five percent is considered the magic number to spur broad-based buying.
It's clear that U.S. processors have the desire to improve. It's time for government help with a modest tax break.
Bregar is an Akron-based senior reporter. His beats include machinery.