Stimulus or bust? Although Bush touts tax cut, the B.E. 100s have mixed feelings.

When President George W. Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 on May 28th, he waxed positive on the impact it would have on American business. But BE 100s executives have mixed feelings about whether the legislation is an economic windfall or just hot air.

Charles Griggsby, CEO of Dallas, Texas-based Facility Interiors Inc. (No. 72 on the BE INDUSTRIAL/SERVICE 100 list with 47 million in revenues), says his office furniture and accessories company won't be buying new equipment or enlarging its 121-member staff. "The way business is going, we're utilizing what we already [have] and continuing our growth until the economy [comes back]," he says.

While proponents claim the tax plan will stimulate economy and boost business, critics contend that only the rich will truly benefit. Tax rates have been cut for high-income individuals, on corporate dividends and capital gains. The only direct benefits for small businesses are increases in tax writeoffs for new equipment, [See sidebar.]

The theory is that upper-bracket individuals will spend or invest their extra after-tax money--boosting business and the financial markets. Congresswoman Stephanie Tubbs Jones (D-Ohio) disagrees with these assumptions. "If that were the case, we should be in better shape in 2003 than we were in 2001, when the first Bush tax cut went into place."

On the other hand, Rodney P. Hunt, CEO of RS Information Systems Inc. (No. 19 on the BE INDUSTRIAL/SERVICE 100 list with $190 million in revenues), claims the cut will accelerate his ability to buy new equipment for his McLean, Virginia-based firm. Hunt says his company has been purchasing new equipment all along, taking advantage of the tax breaks year by year.

Hunt says the tax cut will have a positive impact on his personal wealth. "I am a 60% shareholder in the firm. As an S corporation, any tax relief we get that results in tax advantages flows from the corporation to my personal return. I think it will allow me to preserve wealth a bit more."

Though the tax cut will not prompt the Philadelphia Coca-Cola Bottling Co. (No. 4 on the BE INDUSTRIAL/SERVICE 100 list with $435 million in sales) to purchase new equipment or increase its 1,850-strong staff, the legislation may enable its customers to buy new equipment from the company. "I would say that for the very small [companies], it might have an impact," says Shahara Ahmad-Llewellyn, the company's vice chairman.

Ahmad-Llewellyn doesn't think the 35% cap on the federal individual tax rate will affect her family. They live in New York City, where new city and state tax increases will wipe out improvements made at the federal level. "The way we see it, the major change will be in the 15% cap on the capital gains tax. That's the major change in our personal wealth. The capital gains cap of 15% will have a positive effect on us," Ahmad-Llewellyn says.

Small business is where U.S. economic growth is taking place, but the kind of help small businesses really need is missing from President Bush's tax plan. So says Thomas Boston, professor of economics at the Georgia Institute of Technology and a member of the SE Board of Economists. "The current legislation allows small businesses to increase the amount of expensing they do for tax purposes, but they need more assistance in terms of being able to offer health packages to employees."

Boston also contends that the plan does not offer measures to stimulate the economy. He says the legislation is skewed toward assisting individuals in the upper-income bracket, a group that tends to save rather than spend. And spending is what stimulates the economy to grow.

Highlights of the Jobs and Growth Tax Relief Reconciliation Act of 2003

Business Provisions

Through 2005, small businesses can immediately expense $100,000 per year in new equipment. The usual limit under Section 179 was $25,000. Small business eligibility has also been expanded. Companies qualify if their annual capital investment is less than $400,000. The cap was previously $300,000.

Through 2004, a bonus depreciation clause applies to all companies whose capital purchases exceed $100,000. Instead of the usual 30%, they can now write-off 50% of new equipment placed in service during the year.

Individual Provisions (for those in the higher tax brackets)

38.6%   cut to 35%
35%     cut to 33%
33%     cut to 28%
27%     cut to 25%

SOURCE: U.S. DEPARTMENT OF THE TREASURY