Semler's Martinsburg, West Virginia modular home-building business, which he founded in 2008, has 10 employees and $8 million in revenue. Express Modular's work requires frequent visits to remote job sites, which depend on a three-vehicle fleet of light trucks that must be replaced every few years at a cost of up to $50,000 each.
To afford that expense, Semler has relied on something called the Section 179 Deduction, which lets him write off the cost of the vehicles in the year he buys them. Introduced in the 1980s as a temporary stimulus for small businesses and renewed several times, the deduction was made a permanent part of the tax code at the end of 2015. Generally speaking, it allows small business owners to write off up to $500,000 worth of qualified expenses in the year they're made, up to $2 million, rather than amortizing them over a period of years. In addition to spurring immediate spending, which benefits the economy, the deduction theoretically frees up cash that business owners can use to grow their businesses.
Groups such as the National Federation of Independent Business mostly have advocated for the tax break, claiming its long-term effects would stimulate the economy by adding 200,000 jobs and nearly $19 billion to the GDP over the course of a decade. The actual impact is likely to be more muted, though.
"The more expenses you can push to the current year, the more working capital you have, and the better it is overall for taxes," Semler says. But he adds the deduction has not led him to add more jobs. And now that it's permanent, he may feel less inclined to rush to make use of it, as he has in the past.
Critics of the Section 179 Deduction point to its large price tag. According to the nonpartisan Joint Committee on Taxation, which analyzed the budget impact of the permanent deduction, it will cost taxpayers an estimated $77 billion over the next 10 years.
As far as the deduction's ability to stimulate the economy and job growth, research is inconclusive. Generally, the deduction seems to have a stronger effect in tough economic times. For instance, researchers determined that during the recession years of 2008 to 2010, small companies spent an average of 17 percent more annually on equipment following a renewal of the deduction. That's compared with a 10 percent annual post-renewal increase during the calmer economic period from 2001 to 2004.
"Empirical findings suggest the deduction is more effective for firms that are financially constrained," says Joseph Rosenberg, a senior research associate for Urban-Brookings Tax Policy Center, who says U.S. businesses took advantage of about $12 billion worth of Section 179 deductions in 2012, the most recent year for which IRS information is available.
Job growth may be more of a corollary to a business' investment spending than a direct result of it, Rosenberg says. As businesses spend on new equipment, for example, they may need new employees to run it. What's more, the impermanence of the credit, which in the past tended to expire every couple of years before being reinstated, appears to have acted as a stimulus.
"[What] makes people buy stuff now rather than later is the idea that there is a temporary provision allowing them to deduct the cost of the equipment if they buy it now, but not if they buy it next year," says Benjamin Neff, a tax law professor at American University in Washington, D.C.
That's not to say the Section 179 credit hasn't proven extremely effective on all counts for some companies.
Dean Porter Andrews, principal of Easton Porter Group, a 180-employee hospitality business in North Garden, Virginia, has used the deduction three times since the company's founding in 2011, primarily to purchase equipment for the company's hotel, restaurants, and vineyard. (Easton Porter, which Andrews founded with his wife Lynn Easton, also was an Inc. 5000 company in 2015.)
For the 2015 tax year, Andrews plans to write off up to $425,000 for purchases to develop 10 acres of vineyards. In addition to a new irrigation system, vine posts, and crush mats, Andrews plans to hire seven full-time employees with the money he saves, as well as to create a stock appreciation program for workers.
"Because our business is so capital-intensive, Section 179 has a lot of value," Andrews says.