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247 IRET Congressional Advisory 1 (2008)

handle is hein.taxfoundation/iretcgadv0244 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. November 20, 2008 Advisory No. 247 FOUR GOOD STEPS TO EASE THE PAIN OF THE MARKET MELTDOWN BEING OFFERED IN THE SENATE. MORE NEEDED. A bipartisan bill to promote investment and to deal with some of the worst consequences of the market meltdown has been offered by the leadership of the Senate Finance Committee (Chairman Max Baucus, D-MT; and ranking Member Chuck Grassley, R-IA;) and the Senate Committee on Health, Education, Labor, and Pensions (Chairman Ted Kennedy, D-MA; and ranking member Michael Enzi, R-WY). The bill would: 0 Extend the 50% bonus expensing provision of the 2008 stimulus package for one more year, applying to property placed in service by the end of 2009. 0 Extend the enhanced small business expensing provision (Section 179) of the 2008 stimulus package until the end of 2009 (allowing immediate expensing of up to $250,000 for property placed in service by year-end 2009). 0 Suspend the forced minimum withdrawals from IRAs for people age 70 or older. 0 Delay the new pension funding requirements of the Pension Protection Act. These provisions are all steps in the right direction, either boosting investment incentives or providing more flexible rules to help individuals and businesses cope with the sudden, deep, and (one assumes) temporary dip in the stock markets. More is needed. First, the two expensing provisions and the suspension of required withdrawals from IRAs should be made permanent. Second, savers and retirees need more help in dealing with the depressed returns on saving. Therefore, other expiring provisions that ease the tax burden on capital and raise returns to more normal levels should be extended as well. Third, people who are forced back into the work force to cope with the low returns on saving should be exempt from the remaining portion of the Social Security earnings test. Partial expensing of equipment For businesses, the plan would extend the 50% bonus expensing provision of the 2008 stimulus package, which will expire at the end of 2008. It first appeared as a 30% expensing provision in 2002, was increased to 50% in 2003, but was allowed to lapse at the end of 2004. Businesses would be allowed an immediate deduction for half of the cost of equipment purchased and placed in service in 2008. (The rest of the cost would be subject to normal cost recovery over time - i.e., depreciation.) In addition, small businesses would get an increase in the amount of investment they are permitted to expense under the Section 179 expensing rules, from $125,000 to $250,000. Expensing is the best tax treatment for capital investment. It most closely reflects the true cost of the investment to the business, most correctly measures the real income (revenue less cost of production) of the business for tax purposes, and S I gg~ 8 Agg

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