Making Bonus Expensing Permanent
July 15, 2014
The House of Representatives is considering making 50 percent bonus expensing permanent, explain Stephen Entin and Michael Schuyler of the Tax Foundation.
Bonus expensing allows businesses to expense, immediately, half of their investment in equipment and certain assets (those with lives of 20 years or less). Unlike standard depreciation (which spreads expenses over a number of years), bonus expensing moves write-offs closer to the time of purchase -- making them more accurate and more in line with the actual cost of the investment.
Bonus expensing is a federal tax provision that regularly expires but is routinely extended by Congress. Making bonus expensing permanent would encourage firms to acquire more equipment and capital which, in turn, would expand production, raise productivity and boost wages and employment.
Recently, the Chairman of the House Ways and Means Committee, Dave Camp (R-MI), proposed a tax reform plan. Entin and Shuyler analyze what adding bonus expensing to the Camp plan would mean for the economy. They found:
- The Camp plan would increase GDP by 0.2 percent, but adding the 50 percent bonus expensing provision to the Camp plan would increase GDP by 1.8 percent.
- With bonus expensing, the Camp plan would raise federal revenue by $12.4 billion, compared to letting bonus expensing expire.
- Americans would work 0.8 percent more hours if the bonus expensing provision becomes part of the Camp plan. Those additional hours are the equivalent of 780,500 full-time jobs -- 300,000 more jobs than the United States would see if bonus expensing expires.
- Without bonus expensing, capital stock would decrease. But with the provision, capital stock would increase by 4.4 percent.
- Wages would increase by 1.13 percent with bonus expensing. Without it, wages would drop by 0.21 percent.
Entin and Schuyler write that bonus expensing "is a costless way of improving economic performance and raising living standards."
Source: Stephen J. Entin and Michael Schuyler, "Adding Bonus Expensing to the Camp Tax Reform Plan," Tax Foundation, July 7, 2014.
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