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1 Kyle Pomerleau, Trading Longer Asset Lives for Lower Corporate Tax Rates in the United Kingdom 1 (2014)

handle is hein.taxfoundation/taxfaaz0001 and id is 1 raw text is: AOUNDATION Trading Longer Asset Lives for Lower Corporate Tax Rates in the Jan. 2014 United Kingdom No. 413 By Kyle Pomerleau Economist Key Findings Plans that would swap a lower statutory tax rate for longer asset lives risk harming investment in the U.S. economy, especially among capital-intensive industries. The U.K. has lowered its corporate income tax by 50% over the last 30 years, and in the same time has lengthened its depreciation schedules. As a result of the tradeoff of longer depreciation schedules for lower corporate income tax rates, the expected economic boom from reduced rates did not occur. The manufacturing industry was likely disproportionately negatively impact by the swap for longer asset lives. This year, tax reform will continue to be a topic of discussion. Part of these discussions will undoubtedly be plans to lower the corporate income tax rate, which is currently 39.1 percent, the highest among the OECD countries, by closing loopholes. Proposals may look to alter the way capital investments are treated in the tax code by lengthening asset lives, which would reduce the amount businesses can deduct from their taxable income for capital investments as a trade for a lower corporate tax rate.2 In other words, this plan would boost corporate taxable income, thereby offsetting the amount of revenue lost by a corporate rate reduction. This trade-off between lower corporate tax rates and longer asset lives is not unprecedented. The United Kingdom is one country that made this trade in the past. Although the United Kingdom has lowered its corporate tax rate by more than 25 percentage points over the past thirty years, it has also 1 Organisation for Economic Co-operation and Development, OECD Tax Database, http://www.oecd.org/tax/tax poli cy/tax-database.htm. 2 A recent plan to alter capital consumption allowances for the purposes of lowering the tax rate came from the Senate Finance Committee. See Press Release, Senate Finance Committee, Baucus Works to Overhaul Outdated Tax Code (Nov. 21, 2013), http://www.finance.senate.gov/newsroom/chairman/ release/?id=536eefeb-2ae2-453f-af9b-946c305d5c93.

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