How Obama's tax credit helps/hurts IT spending
In a recent speech,Obama was specific about when he wants the tax break to apply - "in 2011," he said. There was initial expectation that the White House would ask Congress to approve a break that applied through 2011, with a retroactive start date to last month.
But the fact that the president has pitched this tax break may be enough to prompt some IT managers to take a second look at some of their purchase plans. An announcement of a major tax incentive for 2011 capital investment will cause a reduction in discretionary IT spending, equipment and system upgrades for the balance of 2010. The tax proposal "will definitely cause borderline projects to be deferred, if the CFO believes that this proposal has a possibility of being implemented," said Joseph Pucciarelli, program director of technology financial and executive strategies at IDC.
If the investment write-off is approved, Pucciarelli estimates that it could increase IT spending anywhere between 7 and 12%. IT hardware purchases are forecasted this year by IDC to reach $135 billion.
The tax break, as proposed, means a business can write off capital purchases in the first year instead of over several years.
The threat that spending could be deferred in expectation of a tax break is "why you got to make it retroactive," said Robert Atkinson, president of the Information Technology and Innovation Foundation, a tech think-tank.