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The Economic Effects of Bonus Depreciation

1 min readBy: Andrew Lundeen

The House Ways and Means CommitteeThe Committee on Ways and Means, more commonly referred to as the House Ways and Means Committee, is one of 29 U.S. House of Representative committees and is the chief tax-writing committee in the U.S. The House Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others. will markup a permanent extension of bonus depreciation on Thursday. Permanently extending bonus depreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. would spur investment, lift wages, grow the economy, and increase federal revenue.

What you need to know about bonus deprecation:

  • Growth: Bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. would grow the economy by 1 percent: This would add $182 billion to the economy.
  • Investment and Wages: Bonus depreciation would increase investment and wages: Permanently extending bonus depreciation would increase the capital stock by over 3 percent and increase wages by about 1 percent by lowering the current cost of investment.
  • Jobs: Bonus depreciation would create 212,000 jobs.
  • Revenue: Static revenue estimates are misleading. Bonus depreciation would increase federal revenue by about $23 billion a year in the long run, due to increased economic activity.

Update: More on Bonus Depreciation:

The Economics of Bonus Depreciation:

Bonus Depreciation, Investment and Growth:

History of Bonus Expensing: