Earlier this year, Senator Susan Collins (R-Maine) introduced S. 1085, the "Small Business Tax Certainty and Growth Act of 2013."  It is very pro-small employer, pro-growth legislation, and all senators should consider becoming co-sponsors.

In particular, the bill is to be commended for moving toward a permanent expansion of small business expensing and an extension of 50% bonus depreciation.

Under the post-fiscal cliff deal, small business expensing ("Section 179 expensing") was expanded for 2013 only.  S. 1085 would make an expanded small business expensing regime permanent.  Under the bill, a business could annually expense up to $800.000 in new business equipment purchases (indexed for inflation in future years). 

Additionally, the post-fiscal cliff bill allowed all businesses (not just smaller ones) to expense up to half of all business purchases in 2013, subjecting the rest to depreciation.  This allowance would be extended for one year under S. 1085.

Absent an expensing policy, medium-sized and larger businesses are required to slowly-deduct ("depreciate") the cost of these assets over several years.  For example, a computer must be deducted slowly over a five-year period.  Some assets, like buildings, have to be depreciated over periods as long as 40 years.

This should not be.  All purchases should be treated equally.  If a business purchases a box of paper clips, it can be written off the first year.  But if it purchases a desk, it takes seven years to recover the cost.  This distorts business decisions by changing the tax treatment of purchases.  In addition, denying a full deduction for capital expenditures serves to bias the tax code away from investment and in favor of consumption.  The tax code should treat all decisions equally.  A deduction delayed is a deduction denied, especially when inflation is a factor.

S. 1085 goes a long way toward correcting this imbalance, and points in the right direction on how tax reform should also treat business purchases.