The U.S. House this week will consider H.R. 4718, a bill introduced by Congressman Pat Tiberi (R-Ohio) to make permanent a tax provision providing for partial expensing of business tangible asset investment. ATR urges all Congressmen to support and vote for H.R. 4718.
Under tax law, most business expenses (wages, rents, etc.) can be deducted as costs against business income. Companies pay taxes on whatever profit is left. One big exception is when businesses invest in essential assets like computers and machinery. These assets are subject to long, muti-year deductions called "depreciation." A computer, for example, takes five years to fully deduct from business taxable income.
Under ideal tax policy, all business expenses--from wages to computers to paper clips--would be immediately deducted in full in the year of purchase.
For many years, the tax code has had a temporary provision which allows companies to deduct much of the cost of these asset purchases in the year they are made. H.R. 4719 would permanently allow a company to deduct half the cost of a new investment, meaning only the other half would be subject to long and complex depreciation rules.
Congress has a long history of support for this concept, so it makes sense to have it become permanent tax law on the way to full business expensing of all purchases.
--In 2002, Congress created a 30 percent partial expensing rule for asset purchases made through 2005
--In 2003, Congress raised this partial expensing level to 50 percent
--In 2004, Congress broadened the scope of what was covered under partial expensing
--In 2010, Congress created a 100 percent (i.e., full expensing) tax relief provision for 2010 and 2011, reduced to a 50 percent partial expensing for 2012 and 2013
--Unless Congress moves soon, there will be no partial expensing at all in the 2014 tax year.
There is a long history of Congress supporting partial expensing. For long-run planning purposes, however, businesses need to know that tax law won't keep changing on them. That's why it's so important to have the certainty that H.R. 4718 brings.
Business investment is ultimately what creates new business capital, and with it new jobs. If Congress wants to create an environment for job creators to thrive, passing permanent partial expensing is the best jobs package possible.