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268 IRET Congressional Advisory 1 (2010)

handle is hein.taxfoundation/iretcgadv0265 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. September 14, 2010 Advisory No. 268 ADMINISTRATION ADVOCATES EXPENSING: ONE BIG PLUS (AMONG THE MINUSES) President Obama h allowed expensing (imr qualified investments through 2011. The intent is to encourage more investment to speed up the sluggish economic recovery. Expensing has given a lift to investment, GDP, and employment in the past. It could work again. This time around, however, the measure would be less of a net incentive for capital formation, and more of a partial o Administration has en gains, and the two top as proposed that businesses be mediate write-off) of 100% of for the remainder of 2010 ffset to other tax increases the dorsed on dividends, capital tax brackets. The expensing provisio software, and specialty stru ranging from 3 to 20 years. reported for tax purposes over n covers equipment, ctures with tax lives Buildings (plant and commercial and r residential structures) written off over 27.5 or 39 years are not eligible. Some types of structural equipment and machinery integral to buildings are eligible. Businesses were allowed to expense 50% of qualified invest- ment in 2008 and 2009. The re- maining 50% of the cost had to be time, under the usual cost recovery (depreciation) schedules. As a counter-cyclical tool, temporary expensing would boost investment spending in the near term, but much of that would be investment borrowed from 2012. By contrast, permanent expensing would encourage additional capital formation, and raise labor productivity, wages, and employment thereafter. The 50% expensing provision lapsed in 2010, but would be reinstated for 2010 under the pending small business bill. The new recommendation would apply to the same investment categories, but cover the entire expense, not merely half.' g~*I S I 66. ~ A~ Agg Chart 1 Real Private Investment And 2001, 2002, and 2003 Tax Cuts 1,100 340 1,050 2002 Tax 2003 Tax Cut - Cut 300o O 1,000 2001 Tax N 280 -_ Cut _ _Equipment 0 S950 ____ oand Software C o <-- Left Axis 260 Z 2 900 . 2 Ma Nonresdidential 24 850 Structures Right Axis - 220 800 .200 2000 2001 2002 2003 2004 2005 Quarter Data Source: BEA, National Income and Product Accounts, Table 5.3.6, accessed via www.bea.gov.

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