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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and local
levels. We are a 501(c)(3) non-profit
organization.
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Economic and Budgetary Impact of
Temporary Expensing
Key Findings
• Recently, a group of Republican lawmakers known as the “Big Six” released a
tax reform framework that proposed a number of individual and business tax
changes.
•
In addition to reducing the corporate tax rate to 20 percent and pass-
through maximum tax rate to 25 percent, the Framework proposes allowing
businesses immediate full expensing of all assets (except for buildings and
other structures) for at least five years.
• Limiting expensing to certain types of capital investments and making it
temporary would greatly reduce the 10-year budget impact. However, there
is a downside: it would greatly limit the economic benefit of expensing.
• We estimate that a five-year, limited expensing provision would only
temporarily boost output, by at most 0.78 percent after five years. By the end
of a decade, GDP would be only 0.18 percent higher than it otherwise would
be, and the remaining gains would be lost soon after.
• Temporary expensing may encourage businesses to shift future investments
forward to take advantage of the larger deductions, but would not raise the
level of investment permanently.
•
Instead of making expensing temporary, lawmakers could pursue other ways
to speed cost recovery on a permanent basis, with permanent economic
gains, without drastically reducing revenue.
• One option to reduce the cost of expensing is called “depreciation indexing”
or “neutral cost recovery,” which we estimate could reduce the cost of
expensing by 90 percent in the first