State of Business: Spur to Spending

Hoping to stimulate businessmen to invest boldly in more productive plants and machines, the Kennedy Administration last week tried a second time to pass a controversial piece of legislation. The powerful House Ways and Means Committee approved a Kennedy-backed plan to give every businessman a tax credit of up to 8% of any amount that he invests in new equipment; the credit would be in addition to present depreciation schedules, which permit businessmen to deduct the costs of plant and equipment from their tax bills over a period of years. Economists reckon that a step-up in spending for such capital goods will be doubly important this year to keep the economy moving forward in the second half, when the big stimulants of Government spending and inventory buying are expected to flatten out.

The tax credit proposal has been clinkering around for a year, died in the House last fall primarily because many vocal businessmen bucked it. (They wanted a more sweeping reform of tax depreciation rates.) Since then, business opposition to the Kennedy proposal has melted considerably, and the tax credit now seems likely to be enacted. One blue-ribbon industrial group, the Machinery and Allied Products Institute, did much to swing opinion by pointing out that an 8% writeoff would have as much impact, for most industries, as a 40% speedup in depreciation writeoffs. President Kennedy has also helped his own cause by speeding depreciation schedules in the textile industry and promising that further liberalization is ahead in the railroad, aircraft and machine-tool industries. Businessmen are thus coming to believe that they can get both the tax credit and faster depreciation.

Many an economist is worried that the U.S. industrial base is growing old. In Western Europe, where businessmen can write off the cost of new plants and machinery much faster than in the U.S., capital spending now averages 10% of gross national product. In the U.S., the share has dwindled in the past five years from 8.3% to 6.6%, well below the 15% of G.N.P. that some economists figure the nation must reinvest if it hopes to compete effectively in world markets.