The U.S. House of Representatives is currently considering tax extenders, the renewal of expiring or recently expired taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. provisions. Among other provisions, the House is considering a permanent extension of 50 percent bonus expensing, otherwise known as bonus depreciation. This allows businesses to immediately deduct, or expense half of their investment in equipment and short-lived structures, unlike the current 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. system that delays these deductions for years or decades.
We’ve released a new study that examines the long-term economic effects of adding 50 percent expensing to the tax reform package developed earlier this year by House Ways and Means Chairman Dave Camp (R-MI). It turns out that adding permanent bonus expensing to the Camp Plan would boost GDP, wages, job creation, and federal revenue. Here are the details:
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Positive Effects of Adding Bonus Expensing to the Camp Tax Reform Plan |
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Economic and Budget Changes vs. Current Law |
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Camp Draft vs. Current Law |
Camp Draft Adding 50% Bonus Expensing |
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GDP |
0.22% |
1.81% |
|
$GDP ($ billions) |
$35.5 |
$295.3 |
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Private business GDP |
0.27% |
1.93% |
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Private business stocks |
-0.18% |
4.41% |
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Wage rate |
-0.21% |
1.13% |
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Private business hours of work |
0.50% |
0.81% |
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Jobs (thousands) |
486 |
780.5 |
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Static federal revenue estimate, GDP assumed constant ($ billions) |
-$30.4 |
-$52.8 |
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Dynamic federal revenue estimate after GDP gain or loss ($ billions) |
-$21.2 |
$12.4 |
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Weighted average service price |
% Change |
% Change |
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Corporate |
0.48% |
-2.84% |
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Noncorporate |
0.46% |
-1.23% |
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All business |
0.47% |
-2.36% |
To read the full report, click here. For more information on 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. , click here.
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