Businesses would increase their investments in new equipment by $50 billion through the end of next year if Congress allowed them to expense 100 percent of the cost.

That's according to a Treasury Department analysis of President Barack Obama's proposal for temporary bonus depreciation of 100 percent. Allowing businesses to write off all the cost of capital investments immediately instead of depreciating it over time gives businesses an incentive to buy equipment such as trucks or factory machinery now instead of later.

The Treasury Department estimates 2 million businesses would take advantage of this incentive.

These businesses would "have additional money to invest in workers and in other plants and equipment," Obama said Oct. 29 during a visit to Stromberg Metal Works in Beltsville, Md.

The 2009 economic stimulus bill allowed businesses to write off 50 percent of new capital investments, and the recently enacted Small Business Jobs Act extended this incentive through the end of this year. It's unclear how much investment this tax break generated, but a recent study concluded similar policies in 2001 and 2003 helped the economy. The president's proposal for 100 percent expensing would be even more effective than the partial expensing already tried, according to the Treasury Department.

"This is not a shot in the dark," Obama said. "This is a proposal that works."

Some economists, however, doubt the proposal would provide much of a boost to the economy. John Makin, a resident scholar at the American Enterprise Institute, compares 100 percent expensing to the "cash for clunkers" incentive to buy new automobiles, as well as the first-time homebuyer's tax credit. All of these breaks encourage businesses or consumers to spend now instead of later.

"It's a quick shot of adrenaline that wears off very quickly," Makin said.

Once the 100 percent expensing benefit expires, business investment would be lower than it otherwise would be, he said.

The president's 100 percent expensing proposal would apply to all businesses, regardless of their size. Small businesses already can expense 100 percent of capital investments of up to $500,000 through 2011, thanks to a separate provision included in the Small Business Jobs Act.

For more information, see www.treas.gov

SBA asks Labor Dept. to reconsider wage hikes

The Small Business Administration's Office of Advocacy asked the Department of Labor to reconsider a proposed regulation that would increase wage rates for foreign workers hired through the H-2B visa program.

Businesses that can't find U.S. workers for seasonal, unskilled jobs can use H-2B visas to hire foreigners to fill these positions. Only 66,000 H-2B visas are issued a year. Employers must pay H-2B workers a wage that's high enough to avoid undercutting the wages paid to U.S. workers in similar positions.

The Department of Labor wants to increase the required wage for H-2B workers. Under its proposed regulation, the hourly wage would be raised by $1.29 an hour for restaurant/bar workers, $3.60 an hour for landscaping services and $10.61 an hour for construction workers.

The Office of Advocacy, which represents small businesses in the regulatory process, fears the proposed wage hikes could shut many small businesses out of the H-2B program. It contends the Department of Labor underestimated how many small businesses would be affected by the changes and should consider alternatives to its proposal.

"Advocacy believes that the proposed rule will have a significant economic impact on a substantial number of small entities," the office wrote the Department of Labor.

At an Oct. 20 roundtable on the issue, small businesses in the construction, hotel, landscaping, crab-processing, amusement park and food-processing industries said the wage hikes "will have devastating consequences for their businesses," the letter stated.

A representative from the crab industry, for example, said the proposed rule would raise its hourly wage by $4.38 - a 60 percent increase in labor costs. U.S. crab processors likely wouldn't be able to compete with foreign crab processors at this higher labor rate, which could force many of these businesses to close, the representative said.

For more information, see www.sba.gov/advo

State, local revenues may not recover for years

Nearly half of municipal bond industry professionals expect state and local government revenues to remain depressed for five years or more, according to a survey by RBC Capital Markets.

Plus, the federal government may no longer come to their rescue. Half of those surveyed expect the level of federal assistance to state and local governments will decline over the next three years. About 27 percent expect no change in federal assistance, and only 24 percent expect an increase.

Respondents to the survey included government officials, bankers and other municipal bond industry professionals.

Despite their revenue challenges, few states and localities are expected to default on their debt.

"The risk of defaults on bonds issued by these municipalities generally remains well below similarly rated corporate debt," said Chris Mauro, director of municipal bond research at RBC Capital Markets. "Despite the fact that municipal credit quality has deteriorated in this recession, the public perception that municipal bonds have become a riskier asset class to own relative to corporate debt is simply not true."

For more information, see www.rbccm.com

Kent Hoover is Washington bureau chief for American City Business Journals.