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1 Stephen J. Entin & Michael Schuyler, Adding Bonus Expensing to the Camp Tax Reform Plan 1 (2014)

handle is hein.taxfoundation/taxfaad0001 and id is 1 raw text is: TAX OWii. FOUNDATION Adding Bonus Expensing to the FISCAL FAT Camp Tax Reform Plan By Stephen J. Entin Michael Schuyler Senior Fe ow Fe ow Introduction Congress is currently considering tax extenders, the renewal of expiring or recently expired tax provisions. Among the provisions is 50 percent bonus expensing, otherwise known as bonus depreciation. The extender provision passed by the House Ways and Means Committee, currently under consideration by the whole House of Representatives, would make 50 percent bonus expensing a permanent feature of the U.S. cost recovery system. Fifty percent bonus expensing allows businesses to immediately write off, or expense, half of their investment in equipment and short-lived structures (assets with twenty year lives or less). It does not apply to commercial and residential buildings or factories. Bonus expensing moves the timing of depreciation write-offs closer to the time of purchase. This brings the write-offs closer to the full value of the cost of the investment, reducing the after-tax cost of acquiring capital assets and moving the tax treatment of cost recovery toward tax neutrality (when taxes fall with equal impact on income used for investment or consumption). If made permanent, bonus expensing would induce firms to acquire and maintain a larger stock of equipment. The added capital would expand domestic production, raise productivity and wages, and increase employment. Adding Bonus Expensing to the Camp Plan Would Grow the Economy, Lift Wages, and Raise Revenue In previous papers,1 we used the Tax Foundation's Taxes and Growth Model to examine the effect of the tax reform proposal recently released by Ways and Means Chairman Dave Camp (R-MI), and, separately, to model the effect of adding 50 percent bonus expensing to present law. In this paper, we model the effect of adding 50 percent bonus expensing to the Camp proposal. 1 See, e.g., Stephen J. Entin, Michael Schuyler, & William McBride, An Economic Analysis of the Camp Tax Reform Discussion Draft, TAX FOUNDATION SPECIAL REPORT No. 219 (MAY 14, 2014), http://taxfoundation. org/article/economic-analysis-camp-tax-reform-discussion-draft. See also William McBride, Some Tax Cuts Pay for Themselves, TAX FOUNDATION TAX POLICY BLOG, MAY 29, 2014, http://taxfoundation.org/blog/ some-tax-cuts-pay-themselves.

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