10 Updates

If Businesses Can Expense Their Capital Investments, They Should Lose Their Interest Deduction

Apr 17 2014, 2:51pm CDT | by

Egged on by business lobbyists, congressional tax writers seem increasingly interested in allowing firms to rapidly write off the cost of their capital investments. Especially in the House,...

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14 weeks ago

If Businesses Can Expense Their Capital Investments, They Should Lose Their Interest Deduction

Apr 17 2014, 2:51pm CDT | by

Egged on by business lobbyists, congressional tax writers seem increasingly interested in allowing firms to rapidly write off the cost of their capital investments. Especially in the House, lawmakers would allow small businesses to expense the full cost of their investments in the year they are acquired, and let larger firms heavily front-load tax depreciation for their capital purchases.

There is some logic to this idea. Expensing is a key element of a business consumption tax, for instance. But in a well-designed consumption levy, expensing comes with an important trade-off:  Firms lose their ability to deduct interest costs associated with those purchases.

Unsurprisingly, none of the supporters of expensing or rapid depreciation has suggested this. But they should.

The reason for the trade-off is simple. When a firm can expense its capital costs, the tax rate on that investment is zero. If the business can also deduct interest, it is paying a negative tax on that equipment—effectively receiving an investment subsidy from the government. Here’s a nice Tax Notes essay from a few years back by Cleveland State law professor Deborah Geier that explains what’s going on.

Despite this problem, supporters of very generous tax treatment for capital investment are steaming ahead. Two key depreciation provisions expired at the end of the last year (two of the dozens of so-called extenders). And many lawmakers would bring them back to life.

Senate Finance Committee Chair Ron Wyden (D-OR) would restore through 2015 a measure that would allow small business to expense up to $500,000 in equipment (phasing out for investments of up to $2 million) and a second provision called bonus depreciation that would let all firms write-off their investment costs faster than usual.

In the House, senior Ways & Means Committee member Pat Tiberi (R-OH) along with Democrat Ron Kind (D-WI) have proposed making the small business provision permanent. Extending these two ideas for 10 years would add nearly $350 billion to the deficit over the decade.

Interestingly, panel chairman Dave Camp (R-MI) has gone in a very different direction in his tax reform plan and would repeal accelerated depreciation. But while his reform is going nowhere, Camp has begun an exercise to determine which of the expired provisions should be made permanent and which would be allowed to die. He’s been noncommittal when asked about Tiberi’s bill.

The bonus depreciation provision has been in and out of the tax code for more than a decade. In 2008 it was made especially generous as part of the big anti-recession stimulus bill and it was extended in 2010. Though businesses are currently awash in cash, many are pushing hard to make the generous depreciation rules permanent or, at the very least, bring them back for a few more years.

By some estimates , these provisions are worth in excess of $70 billion-a-year in increased up-front cash flow for the S&P 500 alone. Of course, they’ll eventually have to pay it back but firms nearly always want the cash now rather than later (especially when it comes in the form of an interest-free loan from the government). And when interest rates rise, the subsidy will be even more valuable. It is no wonder K Street is pushing so hard to restore the rules.

But combining expensing or even very generous multi-year depreciation with an interest deduction allows firms to exploit tax preferences with borrowed money.  It creates a classic tax arbitrage. If expensing and bonus depreciation are going to be made permanent, Congress should limit the interest expense deduction too.

 
Update
10

6 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

Cambodia's Famous Battambang Circus
KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat was ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

New Zealand All Blacks Squad Announcement
KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by r ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

Federal Aviation Administration Bans All US Flights To Israel
KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was reject ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Mini ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

INDIA-CHINA-DIPLOMACY-TRADE
PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

Government Weekly Cabinet Meeting
KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million in c ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minist ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

Iskandar Johor Open - Previews
JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

EurAsia Cup presented by DRB-HICOM - Day One
PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Baz ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kidex) today. ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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