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Some Ignored Costs of Bonus Depreciation

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Publication Date: March 2008

Publisher(s): Tax Policy Center

Author(s): C. Eugene Steuerle

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Tax Policy; Tax Distribution and Economic Trends; Taxes, the Budget, and the Economy; Economic Stimulus

Type: Report

Abstract:

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.