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117 IRET Congressional Advisory 1 (2001)

handle is hein.taxfoundation/iretcgadv0114 and id is 1 raw text is: July 11, 2001 No. 117 HIGH PRODUCTIVITY INVESTMENT ACT WOULD BOOST ECONOMY NOW AND PAVE WAY FOR LONG TERM GROWTH AND TAX REFORM The High Productivity Investment Act (HPI) has been crafted by Representatives Philip English (R-PA) and Richard Neal (D-MA). The Act would let businesses claim the full cost of their investment in high tech equipment as a business expense in the year it was purchased (expensing) and would shorten the time frame over which outlays for all other equipment could be recorded for tax purposes. The new depreciation rules would apply to the AMT as well as the ordinary income tax. The effect of the faster write-offs would be to lower the cost of utilizing equipment and to increase capital formation, resulting in higher labor productivity, wages and employment. Most of the economic gains from the Act would accrue to the labor force. The HPI would rejuvenate the economic expansion and ensure a more favorable budget outlook for government at all levels. Faster write-off of the cost of investment would give a badly needed shot in the arm to investment spending and the economy. The current economic slowdown is almost entirely due to a deceleration in the rate of real business fixed investment, primarily in equipment and software. That category of spending grew at an annual real rate of 12.7 percent from the second quarter of 1992 to the third quarter of 2000. Since then, equipment spending has fallen at a 2.8 percent annual real rate. (We warned two years ago that the investment boom triggered by the reduction in the rate of inflation in the early 1990s would soon run out of steam, and needed reinforcement in the form of faster capital cost recovery. See Stephen J. Entin, Depreciation: The Missing Piece of the Tax Cut Plans, IRET Congres- sional Advisory No. 83, July 12, 1999.) Institute for Research on the Economics of Taxation WNrite-off periods under HPI Act and Current Law Type of equipment Asset life under HPI Asset life under current law New technology equipment 1 year: full expensing in the year the 3, 5, 7, 10, 15 or 20 years depending asset is placed in service on asset type and business category Other productive equipment 3 years 3 years 3 years 5 years 5 years 7 years 5 years 10 years 10 years 15 years 15 years 20 years IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N.W., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 9 Fax 202-463-6199 0 Internet www.iret.org

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