Expensing of Business Assets - New Treasury Report

Economic stimulus provisions of the past few years have included bonus depreciation and higher expensing amounts under IRC Section 179.

President Obama has suggested that broader expensing can provide additional stimulus by reducing the cost of capital for all businesses. In September 2010, President Obama released a proposal to "jump start private investment and job creation" by allowing full expensing of qualified investments through the end of 2011. He also noted that this would be the "largest temporary investment incentive in American history." (White House Blog, 9/8/10)

On October 29, 2010, the Treasury Department released an 18-page report, The Case for Temporary 100 Percent Expensing: Encouraging Business to Expand Now By Lowering the Cost of Investment, to further explain and justify the President's proposal. The report states that full expensing will "lower the effective tax rate on income derived from business investments, and thereby encourage additional demand for capital goods."

The report also notes the added benefit of a temporary rather than a permanent provision, namely the incentive to accelerate investment. Expensing also equalizes the effective tax rates on different types of eligible assets regardless of useful life or the MACRS recovery period.
Treasury also notes advantages of expensing of qualified assets outside of the IRC Section 179 expensing regime. That is, the expensing proposal has no limit based on the dollar amount of assets placed in service during the year and no limit based on current year income.

Whether broad-based, temporary expensing will take the place of the temporary 50% bonus depreciation depends on finding revenue offsets, whether Congress also finds that additional stimulus legislation is needed, and how the proposal ranks among other congressional tax priorities.

Over the years, both full and partial asset expensing have been suggested as part of major tax reform as well as an approach for reducing the effective corporate tax rate. So, I think the report may open the door to continued discussions not only on economic recovery approaches, but also on fundamental tax reform.

What do you think?

Expensing of Business Assets - New Treasury Report 2010-11-05T19:27:00-07:00 Rating: 4.5 Diposkan Oleh: Unknown