Some Ignored Costs of Bonus Depreciation
Publication Date: March 2008
Publisher(s): Tax Policy Center
Author(s): C. Eugene Steuerle
Special Collection: John D. and Catherine T. MacArthur Foundation
Keywords: Tax Policy; Tax Distribution and Economic Trends; Taxes, the Budget, and the Economy; Economic Stimulus
As part of the recent stimulus bill, Congress and President Bush decided to try to grant businesses bonus depreciation allowances for new purchases of equipment. For each $100 spent in 2008 on equipment expected to last at least five years, businesses would be able to deduct the vast majority of costs in the first year ? $600, versus $240 under the old law. At a 35 percent corporate tax rate, for instance, corporations can get checks from the IRS for $210 instead of $84 in the first year for each $1,000 invested. There is one catch: They must have $210 of taxes already due to get $210 back, or $600 of profit against which to take a $600 deduction. Otherwise they will have to delay taking the deduction ? which is the world they were already in.