ON-Lion Letter

The U.S. Congress "is currently considering tax extenders, the renewal of expiring or recently expired tax provisions," begins a July paper from the Tax Foundation in Washington, D.C.  "Among the provisions is 50 percent bonus expensing, otherwise known as bonus depreciation.  The extender provision passed by the House Ways and Means Committee, currently under consideration by the whole House of Representatives, would make 50 percent bonus expensing a permanent feature of the U.S. cost recovery system."

The paper was researched and written by Stephen J. Entin and Michael Schuyler, both of whom are fellows at the Tax Foundation, which is supported by The Lynde and Harry Bradley Foundation in Milwaukee.

"Fifty percent bonus expensing allows businesses to immediately write off, or expense, half of their investment in equipment and short-lived structures (assets with twenty year lives or less)," according to Entin and Schuyler.  "It does not apply to commercial and residential buildings or factories.

"Bonus expensing moves the timing of depreciation write-offs closer to the time of purchase," they continue.  "This brings the write-offs closer to the full value of the cost of the investment, reducing the after-tax cost of acquiring capital assets and moving the tax treatment of cost recovery toward tax neutrality (when taxes fall with equal impact on income used for investment or consumption).

"If made permanent, bonus expensing would induce firms to acquire and maintain a larger stock of equipment.  The added capital would expand domestic production, raise productivity and wages, and increase employment."

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