Skip to content

Cost Recovery

Removing tax policy barriers can help businesses and individuals invest, work, create jobs, and lift the economy during a post-pandemic recovery without requiring lawmakers to create new spending programs. One of the most cost-efficient options available to lawmakers is to make permanent and expand the full expensing of capital investment.

While tax rates matter to businesses, so too does the measure of income to which those tax rates apply. Depreciation understates investment costs, overstates business profits, and reduces the after-tax return on the investment—resulting in less capital formation, productivity growth, and economic output. In other words, depreciation requires businesses to pay tax on income that doesn’t exist.

Removing the tax code’s bias against long-term investment by implementing a neutral cost recovery system (NCRS) for structures and full expensing for other assets is estimated to increase economic growth and job creation. Using the Tax Foundation General Equilibrium Model, we estimate that permanent full expensing and neutral cost recovery for structures will add more than 1 million full-time equivalent jobs to the long-run economy and boost the long-run capital stock by 13 percent, or $4.8 trillion.

Download Toolkit

Learn more with TaxEDU

All Related Articles

White House considers capital gains tax cut, neutral cost recovery, full expensing amid coronavirus economic relief options, coronavirus business relief

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

Tax Policy After Coronavirus: Clearing a Path to Economic Recovery

Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.

26 min read

10 Common Tax Myths, Debunked

Identify some of the most common tax myths and tax policy misconceptions and learn how to separate fact from fiction. Discover why tax refunds shouldn’t be celebrated, why you should pay your income tax bill, and why certain deductions are wrongly labeled “loopholes,” among other useful facts. Improve your ability to counter misleading arguments about the tax code.

depreciation Capital allowances and capital cost recovery across OECD countries, 2021. Learn more about capital allowance and capital recovery.

Capital Cost Recovery across the OECD, 2020

Although sometimes overlooked in discussions about corporate taxation, capital cost recovery plays an important role in defining a business’s tax base and can impact investment decisions—with far-reaching economic consequences.

27 min read
Inflation Reduction Act corporate taxes most economically damaging way to raise revenue Raise the corporate tax rate, raise corporate tax rate, corporate tax hike, corporate tax increase, corporate tax burden

Expensing Provisions Should Not Favor Physical Over Human Capital

Investments in worker training and education can increase productivity and economic output as growth in human capital accumulates, though the time horizon for these effects is longer than that of physical capital accumulation.

3 min read
Understanding Why Full Expensing Matters, Full expensing is also known as accelerated depreciation of capital investments, Learn more about accelerated cost recovery of investments.

Understanding Why Full Expensing Matters

Understanding the channel through which a tax policy change is expected to affect the economy is crucial. Absent this understanding, we are likely to reach the wrong conclusions on what sound tax policy looks like and what changes would improve the tax code.

4 min read
full expensing, 100% bonus depreciation,

New Evidence on the Benefits of Full Expensing

Additional evidence on the economic benefits of full expensing of investment was recently published in the American Economic Journal: Economic Policy.

4 min read
depreciation requires businesses to pay tax on income that doesn't exist capital investment

Depreciation Requires Businesses to Pay Tax on Income That Doesn’t Exist

While tax rates matter to businesses, so too does the measure of income to which those tax rates apply. The corporate income tax is a tax on profits, normally defined as revenue minus costs. However, under the current tax code, businesses are unable to deduct the full cost of certain expenses—their capital investments—meaning the tax code is not neutral and actually increases the cost of investment.

3 min read