Serious, Pro-Growth Tax Reform Must Contain 100 Percent Immediate Full Business Expensing

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Posted by John Kartch on Wednesday, August 24th, 2016, 12:12 PM PERMALINK

Clinton plan fails, retains complex depreciation schedules and offers no income tax rate reduction for anyone

Under the tax code, business owners cannot immediately expense the cost of purchasing equipment against their taxable income. Instead, they have to deduct, or “depreciate,” these costs over several years depending on the asset they purchase, as dictated by complex and arbitrary IRS tables.

These rules create needless complexity, and force business owners to make decisions based on tax, not management reasons. Any serious, pro-growth tax reform plan should eliminate depreciation in favor of 100 percent immediate full business expensing, as both the Donald Trump and House Republican plans call for.

With the existing depreciation schedules, business purchases are treated differently under the tax code, with no clear pattern or common theme. Businesses have two different systems of depreciation and investments can be depreciated over 3, 4, 5, 7, 10, 12, 14, 15, 20, 25, 27.5, 30, 35, 39, 40, or 50 years depending on the system used and the asset purchased.  

This creates a complex and confusing system for business owners that distorts business decisions, as the House Republican “Better Way” tax reform blueprint explains:

“For each asset, they must determine the period over which the asset may be depreciated or amortized and the method that must be used to determine the annual allowance with respect to the asset. For many assets, the cost must be spread over many years for tax purposes. This means that businesses are taxed today on the earnings they reinvest in growing their operations and can recover the cost of that investment only many years later.”

Not only would 100 percent immediate full business expensing eliminate needless complexity in our tax code, it would also lead to strong economic growth. According to research by the Tax Foundation, full business expensing would result in 5.4 percent higher long-term GDP, would create more than 1 million full time jobs, and would increase after-tax income by 5.3 percent.

There is clear rationale for policymakers to implement a cash flow system that allows businesses to immediately expense their purchases. This would make the tax code consistent and clear, and stop it from picking winners and losers.

Fortunately, plans released by the Donald Trump presidential campaign and by House Republicans led by Speaker Paul Ryan (R-Wis.) and Ways and Means Chairman Kevin Brady (R-Texas) would both allow 100 percent immediate full business expensing.

The Hillary Clinton plan – a collection of tax increases on the American people topping $1 trillion over ten years – retains the old, job-killing regime of Byzantine depreciation schedules. The Clinton plan also calls for a complex capital gains tax hike, a Death Tax hike, and no income tax rate reduction for anyone.

The fact is, keeping the existing system of depreciation hurts economic growth and adds a confusing and unnecessary layer to the tax code. 100 percent immediate full business expensing should be in any serious pro-growth tax plan, Democrat or Republican.

Americans for Tax Reform is tracking all of Hillary’s tax increase proposals at its dedicated website,

See Also:

Norquist Statement on Clinton Tax Plan

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