From a business perspective, we all look at bonus depreciation as a good thing. However, it appears as though too much of a good thing may be bad for our national debt. In an article in The Fiscal Times, authors Brianna Ehley and Josh Boak look into President Obama’s strategy of bonus depreciation as a means to stimulate the economy.
As part of his 2009 stimulus package, the president tried to jumpstart the economy for part of 2010 and 2011 by letting companies deduct the full cost of new computers, machinery and office equipment—what accountants call “bonus depreciation.” The plan halved the size of the deduction for 2012 and 2013, even though the results appear to be lackluster.
One industry official who advocated for the write-off confided to The Fiscal Times, “It would have been worse without it, sure, but it didn’t have that much effect on decisions to invest, since the economic uncertainty still had business owners extremely worried about future sales.”
The Government Accountability Office revealed this month that companies saved $76.1 billion on their 2011 tab with the IRS. But it’s unclear how crucial it has been to a slow recovery.
The White House forecast back in 2010 that the 100 percent depreciation would produce $50 billion in new private investment. It would come at a $150 billion price tag for two years, but the additional corporate spending and return to normal growth patterns would bring that expense down to $30 billion over a decade, the administration said in a white paper.
What complicates those initial White House estimates is that a strong recovery never materialized, and the administration continued the accelerated depreciation—albeit at 50 percent—for 2012 and 2013. And the costs of the accelerated tax write-off may have backfired by robbing federal coffers of substantial revenue.
According to Steve Wamhoff, an analyst at the Citizens for Tax Justice the constant use of bonus depreciation—which President George W. Bush also relied on in 2002, 2003, 2004 and 2005—make it less likely that the government will ever fully recover the $120 billion in revenues first projected by the Obama administration.
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