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1980s Tax Reform, Cost Recovery, and the Real Estate Industry: Lessons for Today
The Tax Reform Act of 1986 extended depreciation schedules for both commercial and noncommercial of real estate, reducing the attractiveness of those investments.
21 min read
Tax Options to Promote Short-Term Recovery and Long-Term Economic Growth in Wisconsin
From a revenue standpoint, Wisconsin was better off than many states going into this crisis, but the policy decisions—including tax policy decisions—state policymakers make in the months ahead will have far-reaching implications for how quickly jobs and wages are restored in Wisconsin.
7 min read
FAQ on Neutral Cost Recovery and Expensing
Cost recovery is the way the tax code permits firms to recover (or deduct) the cost of making investments. Cost recovery plays an important role in defining a business’ taxable income and can impact investment decisions.
Did 1986 Tax Reform Hurt Affordable Housing?
Improving cost recovery for residential structures, while not a silver bullet for solving the housing crisis, would on the margin encourage more construction that would help push rents down across the board.
4 min read
Estimated Impact of Improved Cost Recovery Treatment by State
We estimate that moving to permanent full expensing and neutral cost recovery for structures would add more than 1 million full-time equivalent jobs to the long-run economy and boost the long-run capital stock by $4.8 trillion.
4 min read
Improving the Tax Treatment of Residential Buildings Will Stretch Affordable Housing Assistance Dollars Further
By updating the tax code to allow developers to more fully cover their investments, construction costs will fall, which, in turn, means that federal affordable housing assistance dollars will go that much further in helping low-income tenants.
3 min read
Why Neutral Cost Recovery Is Good for Workers
Studies have shown that accelerated depreciation helps increase wage growth. A recent report found that states that implemented accelerated depreciation in their tax codes led to a 2.5 percent increase in compensation per employee in manufacturing, relative to states that did not.
3 min read
Full Expensing is Good for the Short Run and the Long Run
In the first year of enactment alone, we estimate the combination of full expensing and neutral cost recovery would increase full-time equivalent employment by more than 44,000 jobs. The cumulative impact by year five of the policy would be nearly 200,000 new jobs.
4 min read
Answering Four Questions About How Neutral Cost Recovery Works in Practice
A neutral cost recovery system lowers the short-term cost of the policy to the federal government while providing nearly equivalent economic benefits. While neutral cost recovery is not a new idea, there are several policy questions lawmakers will want to consider when designing this system.
6 min read
What the Internet Can Teach Us About Capital Investment, Infrastructure, and Tax Policy
The lockdowns imposed in response to the COVID-19 pandemic induced an increase in demand for broadband internet, as work from home and other social distancing measures pushed people to spend more time online. As broadband becomes a more important piece of America’s infrastructure, it makes sense to look at tax policy that will help drive more investment and better service.
2 min read
Inefficiencies Created by the Tax System’s Dependence on Economic Depreciation
One idea that would help the nation’s economic recovery during the coronavirus crisis would be moving to full expensing of capital investment. The depreciation debate might seem confusing, so the question at hand is: how, when, and by what amount can businesses recognize (or recover) the cost of a capital investment, like a piece of equipment or a new warehouse, on their income tax return?
6 min read
Neutral Cost Recovery Is Not a New Idea
As stated by Rep. Jack Kemp in 1985, “Neutral cost recovery is designed to provide the present value of investment expensing without some of its practical problems.”
5 min read
Empirical Evidence Shows Expensing Leads to More Investment and Higher Employment
The Tax Foundation’s General Equilibrium Model suggests that allowing businesses to immediately deduct or “expense” their capital investments in the year in which they are purchased delivers the biggest bang for the buck in spurring economic growth and jobs compared to other tax policies.
7 min read
Options for Improving the Tax Treatment of Structures
Improving the tax treatment of structures is one of the most cost-effective tax policy changes available to lawmakers as they consider how to remove investment barriers in the tax code to hasten the economic recovery. Policymakers must weigh the trade-offs among long-run economic output goals, revenue constraints, and the existing stock of structures.
13 min read
Reducing the Bias Against Long-term Investments
Other countries have shown that providing deductions in line with invested capital costs can have positive impacts both on investment and on debt bias.
7 min read
White House Considers Neutral Cost Recovery for Structures
When considering long-term policies for increasing long-run levels of investment and economic growth, full expensing and neutral cost recovery are better targeted than policies like a capital gains cut.
6 min read
Reviewing the Economic and Revenue Implications of Cost Recovery Options
Permanent full expensing for all types of investment is an effective policy change lawmakers can use to encourage additional investment and economic growth.
9 min read
Reviewing the Benefits of Full Expensing for the Post-Pandemic Economic Recovery
One of the most cost-effective policy changes would be to make full expensing of machinery and equipment permanent and extend this important tax treatment to structures as well as for firms in a net operating loss position.
7 min read