Any Republican Growth Package Should Have Full Business Expensing

ATR ^ | 2011-10-14 | Ryan Ellis

[92nina]

There's a lot of buzz on Capitol Hill right now about one or more Republican "growth packages" to counter President Obama's "Stimulus 2" plan. Any GOP plan should have full business expensing of assets.

What is expensing? Full business expensing allows companies who purchase business assets (computers, furniture, etc.) to deduct the full cost of those assets from their taxable income in the year of purchase. How do businesses account for assets if they can't expense them? Absent an expensing policy, medium-sized and larger businesses are required to slowly-deduct ("depreciate") the cost of these assets over several years. For example, a computer must be deducted slowly over a five-year period. Some assets, like buildings, have to be depreciated over periods as long as 40 years.

Why is expensing better than depreciation? All purchases should be treated equally. If a business purchases a box of paper clips, it can be written off the first year. But if it purchases a desk, it takes seven years to recover the cost. This distorts business decisions by changing the tax treatment of purchases. In addition, denying a full deduction for capital expenditures serves to bias the tax code away from investment and in favor of consumption. The tax code should treat all decisions equally. A deduction delayed is a deduction denied, especially when inflation is a factor.

Don't we already have full business expensing? Partially, and temporarily. Smaller companies in 2011 can expense up to $500,000 of equipment, with this ability reduced dollar-for-dollar for all equipment purchases exceeding $2 million. In addition, all taxpayers can expense up to 100% of business purchases (besides buildings) in 2011.

What should the right policy be? The ability of companies to expense 100% of business purchases should be made a permanent feature of the tax code. In addition, it should be expanded to include real property and so-called "intangible property." This is a must-have feature of any real growth package.

Read more: http://www.atr.org/republican-growth-package-full-business-expensing-a6524#ixzz1amNx8FHB

[92nina]

An economic growth package without full business expensing makes no sense.

Take this article and others I found to the fight to the Libs on their own turf; put the Left on the defensive at Digg and in Stumbleupon and in Stumbleupon and Delicious

[PhilosopherStone1000]

Sorry, but full business expensing makes no sense.

If I buy a computer, that computer has a value over its lifetime. It’s not a consumable. I can turn around and sell it (or try to) at any time in order to realize that value.

Besides, there’s a way you can fully business expense if you want to; it’s called “leasing”.

[NYCslicker]

I’m not against full business expensing, but on the other hand its not entirely the boon that its being made out to be. It’s essentially just moving net income into earlier years.

Yet on the other hand, leasing brings up a plethora of other issues that are not present in full business expensing.

And of course as you said, the whole idea of GAAP is actually served by depreciation. Full business expensing would serve to artificially inflate net income in some years and artificially depress it in other years.

[NYCslicker]

I’m not so sure that full business expensing is necessarily a libs vs. conservative issue. There are a number of conservatives who would see how depreciation works better than full business expensing, unless you are looking to add volatility to business’s taxable income.

Consider this: According to most theories of value, volatility of cash flow results in one things: decreased present value. Depreciation expense capital over its useful life, i.e. attributes negative cash flows over the period that a capital asset is used. If you expense everything in the first year, you increase cash flow volatility. Increased volatility results in? Your business just became worth less.

Its more just a question of when does the accounting system recognize cash flows for tax purposes. Any period where net income is significantly less due to full expensing (i.e. lower taxes) will result in a number of periods where net income is higher (i.e. higher taxes.) You are just shifting taxes from one year to another. Whether or not this will help a business will depend on the particular tax needs of the specific business. Any given business may or may not benefit from full business expensing.