NCPA - National Center for Policy Analysis

Quicker Write-Offs Could Boost Investment

September 26, 2002

Business investment ballooned in the 1990s and has since gone bust. But observers say it can be revived easily: let companies write off assets much more quickly and they'll invest more. That, in turn, would create jobs and raise incomes. Instead of pulling out of last year's down turn, the economy is acting more like it did during the jobless recovery of a decade ago -- an abrupt change, observers point out, from 1994 to 2000 when the economy boomed on soaring high-tech spending.

  • With investment in computers and peripherals exploding at an annual rate of 130 percent, gross domestic product grew by an average of 3.8 percent a year and overall investment by 13.4 percent.
  • The Congressional Budget Office estimates that fully a third of all growth during the six-year period can be attributed to information technology.

Why does that matter?

  • From 1974 to 1995, U.S. productivity growth averaged a paltry 1.4 percent.
  • From 1996 to 2000 it grew at 2.5 percent.
  • At 1.4 percent, it would take 51 years for Americans to double their standard of living.
  • At 2.5 percent, it takes just 29 years -- showing conclusively that productivity grows only when investment does.

A quicker write-off would help businesses invest and create jobs. Computers and new technologies are now developed so quickly they can't be fully written off under old, outdated depreciation rules. That means keeping outmoded equipment for the complete write-off, or buying new equipment and swallowing the loss.

One study estimates accelerated depreciation alone would have added $52 billion to real GDP from 2002 to 2006 -- half a percentage point a year.

Source: Editorial, "Speed Up Write-Offs," Investor's Business Daily, September 26, 2002


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