Based on the depreciation rates used by the Bureau of Economic Analysis, we estimate that the growth rate of the capital stock of equipment and software slowed from around 7 percent in 1999 and 2000 to about 2-1/2 percent in 2002, a slowdown large enough to substantially shrink most estimates of the capital overhang.
The final factor that complicates the outlook for equipment and software spending stems from the tax code. Currently, the partial-expensing provision in the tax law allows a firm to subtract a large fraction of the cost of new capital equipment from profits right away, rather than depreciating the cost over time, and thereby to lower its taxes.