THE ACCELERATOR for September 12, 2017
News for Driving Economic Growth
RETROSPECTIVE: CONGRESSIONAL TAX COMMITTEES HAVE LONG UNDERSTOOD THE ECONOMIC BENEFITS OF ACCELERATED DEPRECIATION.
Accelerated depreciation became a permanent feature of the tax law with the enactment of the Internal Revenue Code of 1954. In its committee report accompanying the 1954 code, the Senate Finance Committee explained the anticipated economic benefits of accelerated depreciation as follows:
More liberal depreciation allowances are anticipated to have far-reaching economic effects….The acceleration in the speed of the tax-free recovery of costs is of critical importance in the decision of management to incur risk. The faster tax write-off would increase available working capital and materially aid growing businesses in the financing of their expansion. For all segments of the American economy, liberalized depreciation policies should assist modernization and expansion of industrial capacity, with resulting economic growth, increased production, and a higher standard of living. (Emphasis added). [U.S. Treasury Department, Office of Tax Analysis, “A History of U.S. Tax Depreciation Policy,” OTA Paper 64 (May 1989), p. 13.]
In 1981, twenty-seven years after enactment of the 1954 code, Congress revisited the rules for depreciation and concluded that further acceleration in depreciation allowances would once again pay economic dividends. The staff of the Joint Committee on Taxation described the conclusions reached by tax writers in 1981 as follows:
The Congress agreed with numerous witnesses who testified that a substantial restructuring of depreciation deductions and the investment tax credit would be an effective way of stimulating capital formation, increasing productivity, and improving the nation's competitiveness in international trade. The Congress, therefore, concluded that a new capital cost recovery system was required which provides for the more rapid acceleration of cost recovery deductions and maintains or increases the investment tax credit: [General Explanation of the Economic Recovery Tax Act of 1981, JCS 71-81, p. 75.]
RETROSPECTIVE: OBAMA TREASURY POSITION ON ECONOMICS OF RAPID DEPRECIATION
A Department of Treasury study published by the Obama administration in 2010 recommended the adoption of 100 percent bonus depreciation as a temporary way of reducing the cost of capital and boosting domestic investment and hiring. According to the study, the proposal “builds off the demonstrated effectiveness” of past bonus depreciation programs.
REPORT FROM THE BIG 6 TAX REFORM DISCUSSIONS
Reports from the Capitol indicate that proposals for improving capital cost recovery and thereby boosting domestic investment are front and center in the current tax reform discussions between the White House and Congressional tax writers. House leaders continue to make the case for full expensing of capital costs; Senate leaders are reportedly more focused on an extension of bonus depreciation, as proposed by Sens. Thune and Roberts in S. 1144, the INVEST Act.
THE ACCELERATOR is the voice of the CRANE Coalition – Cost Recovery Advances the Nation’s Economy. CRANE is made up of American companies and associations focused on preserving a robust system of cost recovery in the tax code to ensure that businesses have the capital needed to continue driving economic growth and job creation here at home. CRANE has sponsored research on the economics and budgetary aspects of cutbacks in cost recovery. As Congress and the administration endeavor to reform the U.S. tax code in the coming months, CRANE will continue to urge the preservation and enhancement of accelerated depreciation. Follow us on Twitter.