Changes to Business Accounting Rules Could Cost 68,000 Jobs

August 02, 2013

Capital Cost Recovery Provisions Have Significant Impact   

Washington, D.C., August 2, 2013—Delaying the deductibility of legitimate non-corporate business investments could slow down the economy and result in as many as 68,000 lost jobs, according to a new analysis by the Tax Foundation. Tax reform advocates in Congress are scrutinizing an array of tax expenditures for possible elimination, including the current system for asset depreciation.

According to a conventional static revenue estimate, forcing non-corporate businesses to shift from the current Modified Accelerated Cost Recovery System (MACRS) to the much less generous Alternative Depreciation System would increase federal revenues by $7 billion. When analyzed by the Tax Foundation’s dynamic simulation model, however, the real-world impact would actually be a loss of $6.4 billion. In addition, employment would be reduced by approximately 68,000 full-time workers and average hourly wages would decline slightly. The direction of the results is similar, but the numbers much larger, when the switch in the cost recovery system is also modeled at the corporate level.

“Businesses would respond to heavier taxation of capital income at the margin by investing less, until the expected after-tax return on new investment rose enough to compensate for the more punishing tax treatment,” said Tax Foundation Fellow Michael Schuyler, Ph.D.

Even if the assumed revenue from eliminating MACRS were used to finance a cut in income tax rates, the Tax Foundation analysis still finds that it would yield negative economic consequences, with GDP shrinking by $48 billion per year and 6,000 jobs being lost.

Tax Foundation Fiscal Fact No. 383, “Accelerated Depreciation” by Michael Schuyler, Ph.D. and Stephen Entin, is available online. This study is the fifth in a series of 11 case studies in the Tax Foundation’s Economics of the Blank Slate series.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Borean, the Tax Foundation’s Communications Associate, at 202-464-5120 or

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