Senator Pat Toomey (R-PA) has introduced the Accelerate Long-Term Investment Growth Now (ALIGN) Act to allow businesses to fully deduct business assets at the time of purchase, rather than depreciate them over an extended period of time. This provision, also known as 100 percent depreciation, was created by the 2017 Tax Cuts and Jobs Act for five years, but begins to phase out at the end of 2022.
Toomey’s bill will make full expensing permanent and should be supported by all Senators.
The ALIGN Act is co-sponsored by Senators Mike Braun (R-Ind.), Shelley Moore Capito (R- W.Va.), Kevin Cramer (R-N.D.), Ted Cruz (R-Texas), Cory Gardner (R-Colo.), Jim Inhofe (R-Okla.), James Lankford (R-Okla.), Jerry Moran (R-Kan.), David Perdue (R-Ga.), Rob Portman (R-Ohio), Jim Risch (R-Idaho), Marco Rubio (R-Fla.), Tim Scott (R-S.C.), and Thom Tillis (R-N.C.).
Full expensing gives businesses a zero percent effective rate on new investments, which incentivizes more capital flowing into the economy, leading to stronger growth. In contrast, the old system of depreciation required businesses to deduct the cost of new investments over multiple years depending on the asset they purchase, as dictated by complex and arbitrary IRS rules.
These rules create needless complexity, increased compliance costs, and could force business owners to make decisions based on tax reasons over business reasons. In fact, businesses spent over 448 million hours and $23 billion each year complying with this system when it was last in effect.
Moving to full expensing as Toomey has proposed would increase GDP by 0.9 percent, creating 172,300 additional full time jobs, according to the Tax Foundation.
Full expensing has bipartisan support. For instance, the Obama White House supported the policy and noted that it lowers the effective tax rate which encourages businesses to increase investment, create more jobs, and lift wages.
Toomey’s bill also includes a fix to allow qualified improvement property to be immediately expensed, fixing an inadvertent error in the tax bill. While this fix is bipartisan and has strong support in both the House and Senate, Democrats have so far refused to let this proposal have a vote or be attached to a broader legislative vehicle.
Toomey’s ALIGN Act is a commonsense, bipartisan proposal that will increase economic growth and build on the success of the TCJA. All Senators should support this important legislation to make full business expensing permanent.