Studies show that when bonus depreciation is available, businesses respond by investing in more equipment and increasing employment, as they need more workers to operate the new equipment.
Expensing, or the immediate write-off of R&D costs, is a valuable component of the current tax system. The TCJA’s change to amortization in 2022, requiring firms to write off their business costs over time rather than immediately, would raise the cost of investment, discourage R&D, and reduce economic output.
12 min readStates incorporate provisions of the federal tax code into their own codes in varying degrees, meaning that federal tax reform has implications for state revenue beyond any broader economic effects of tax reform.
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Full expensing is a key driver of future economic growth, and can have a larger pro-growth effect per dollar of revenue forgone than cutting tax rates.
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In the long run, permanent full expensing produces about 4.5 times more GDP growth per dollar of revenue than making individual TCJA provisions permanent.
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The Tax Cuts and Jobs Act made significant progress in improving businesses’ ability to recover the cost of making investments in the United States by enacting 100 percent bonus depreciation.
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The Organisation for Economic Co-operation and Development (OECD) praised a measure in the Tax Cuts and Jobs Act (TCJA) passed last December.
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Due to a legislative oversight, the Tax Cuts and Jobs Act excluded the category of qualified improvement property investment from 100 percent bonus depreciation.
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One hundred percent expensing for short-life business investments was a great start but needs to be enacted on a permanent basis for it to have an impact on long-term decision-making.
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The Tax Cuts and Jobs Act improved the US tax code, but key provisions are only temporary. Now Congress may vote to ensure those tax breaks are permanent.
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The Chairman’s Mark of the Senate’s Tax Cuts and Jobs Act includes a number of important changes. Here’s a quick overview of those that matter most.
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If lawmakers are looking to maximize the positive economic effects from a tax bill, then improving tax depreciation for structures should probably be part of the conversation. Here are a few options.
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Instead of making expensing temporary, lawmakers could pursue other ways to speed up cost recovery with permanent economic gains and without drastically reducing revenue. One way to do that is by enacting “depreciation indexing.”
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Full expensing could grow the long-run size of the U.S. economy by 4.2 percent, which would lead to 3.6 percent higher wages and 808,000 full-time jobs. What’s more, it wouldn’t cost as much revenue as some think.
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