Outside influences

I participated in a panel discussion recently where I disagreed with another panelist about the impact of taxes and deficits on truck buyers. My colleague took the position that they had no impact and the moderator gave me one minute to respond. My short answer was that a tax increase, which is the same as not renewing recent tax cuts, would have an obvious impact on the economy because consumer spending

I participated in a panel discussion recently where I disagreed with another panelist about the impact of taxes and deficits on truck buyers. My colleague took the position that they had no impact and the moderator gave me one minute to respond.

My short answer was that a tax increase, which is the same as not renewing recent tax cuts, would have an obvious impact on the economy because consumer spending would drop, leading to a recession. That, indeed would impact truck buyers.

In reality, the answer is much more complex, so I'd like to take the time to talk about it here. Let's look at taxes first. For simplicity's sake, I'll divide taxes into three categories: user, income and property.

Analysis of registration data indicates that carriers can minimize taxes legally by registering equipment in states with lower sales and property taxes. As a result, some states are proposing legislation that would apportion property taxes based on where equipment is actually operated, rather than where it's registered.

About 50 years ago, the government imposed an excise tax — a type of user tax — on vehicles with GVWs of 10,000 lb. or greater. The result was such a dramatic decline in demand for mid-range trucks that none were produced or sold for decades.

More recently, excise taxes have been placed on truck components such as tires. The implementation of a tax based on the weight of the tire coincided with the development of a lower weight, low-profile tire. Needless to say, carriers began spec'ing them.

When the tax was changed to reflect the GVW load rating of the tire, carriers began spec'ing far fewer of the low-profile tires. No tax advantage, no need to buy.

In terms of user taxes, we have been aware of the financial penalty associated with owning and operating trucks in California, not only because of the stringent regulatory issues but also because the back-door user tax adds to the expense of purchasing a California-certified truck.

California has launched a program to identify trucks that have out-of-state registrations but operate primarily in California. I think it is safe to say that trucking companies react to tax increases and decreases just the way the rest of us do.

On to the deficit. First, we have to accept the premise that sustained deficits lead to higher interest rates — the point I made during the panel discussion. In my nearly 30 years of analyzing this industry, only deregulation has had a more devastating impact on truck buying behavior than rising interest rates. In fact, some of the impact of deregulation could have been mitigated had it not been for the sharp rise in interest rates in the early 1980s.

Anyone who's in the business of forecasting knows that interest rates are a significant factor in developing a model to predict demand for straight trucks. While it loses some of its significance as GVW increases, it remains statistically important.

As every forecaster knows, however, statistical significance is not always helpful in understanding causal relationships between the independent variable (interest rates) and the dependent variable (demand for trucks). But independent research has verified that a cause and effect relationship does exist.

Interest rates directly affect the cost of borrowing money to buy equipment, often making the decision to extend a lease more appealing than the decision to buy.

While the direct impact of taxes and deficits may not be apparent, there's little doubt in my mind they play a significant role in carriers' purchasing and operating decisions.

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