Bonus Depreciation Thwarts Partisanship

By February 3, 2012Taxation

Yesterday more than 100 associations, representing a cross section of industries on the front line trying to grow and create jobs in a fragile economy, urged in a letter to conferees on the payroll tax cut extension bill HR 3630 to include in the final conference agreement an extension of 100% bonus depreciation (sometimes referred to as 100% expensing) through 2012.

This provision has garnered bipartisan, bicameral support as well as the support of the White House. The broad support is due in part to the fact that bonus depreciation allows manufacturers to write off the full cost of capital investments, e.g. plant machinery and equipment, in the year of purchase rather than over the depreciation life of the capital investment, which typically span 10 to 20 years.

Given our fragile economy, this provision gives a temporary boost to the customers who want to buy and the suppliers who want to manufacture capital equipment in the USA.  Jobs are maintained and created. Just ask small manufacturer Campbell Fittings of Boyertown, PA, about job creation related to this provision effective for past 2 years. Bonus depreciation drove his company’s decision to make more capital investments that resulted in hiring 40 new workers in the past 15 months to run the new equipment. If 100 percent bonus depreciation were extended through 2012, he plans to make more capital investments.  The new equipment allows his company to compete with foreign competitors. 

Today’s Wall Street Journal article “With Tax Break Corporate Rate is Lowest in Decades” was disingenuous in citing a price tag of $55 billion in each of the past two years for bonus depreciation.  Bonus depreciation is a timing issue, and as such, that means companies can write off the cost of a $100,000 piece of new machinery purchased this year and thus would not be taking depreciation for the next nine years for a typical piece of machinery.  

Kudos to Congress and the Administration in recognizing this private sector job creating provision given our abysmal unemployment rate exceeding 8 percent. Capital investments equal putting people back to work.

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