Benefits & Risks of Accelerated Depreciation Tax Breaks

September 17, 2010 7:15am by Barry Ritholtz

The proposed Capital Spending tax credit is making its way through Congress. You probably have seen and read very little about the accelerated depreciation plan, as it is wonky accounting stuff.

However, do not overlook this. This is one of the better stimulus ideas we have seen come out of the White House.

Indeed, when George Bush passed similar tax credits in 2004-05 — The Jobs and Growth Act of 2003 allowed a 50-67% accelerated depreciation in year 1 versus the a regular depreciation schedule — I applauded it (See the full 2 part analysis here). There is little doubt it goosed enterprise wide software upgrades along with other technology and CapEx spending, such as trucks, planes, machinery, etc.

The drawback? Well, it prodded companies to increase their Capex spending over hiring. That is why I suggested marrying this tax credit with a Payroll tax holiday so as to not nudge companies away from job creating.

Bonus: I see Amity “Recessions-are-2-consec-Qs-of-neg-GDP” Shlaes thinks its a bad idea. That confirms for me that the idea has merit. She as about as reliable a fade as Ben Stein is. I’m in favor of anything she is against.

Previously:
Accelerated Depreciation of Capital Spending (September 12th, 2004)

Economists vs. Job Creation: Why the disconnect? (August 24th, 2004)

Economic Stimulus? Try These 7 Ideas (September 16th, 2010)

The Unintended Effects of Accelerated Depreciation
Barry Ritholtz
RealMoney.com 9/3/2004
http://www.thestreet.com/p/rmoney/barryritholtz/10181479.html

Non Subscription PDFs here

Sources:
Obama Plans Business Tax Cuts, Spending to Aid Growth
Julianna Goldman and Lisa Lerer
Bloomberg, September 07, 2010
http://www.businessweek.com/news/2010-09-07/obama-plans-business-tax-cuts-spending-to-aid-growth.html

Taxes, Capital Spending, and Jobs:
Market strategist Barry Ritholtz explains why the Bush accelerated-depreciation tax break may actually be holding back hiring
Karyn McCormack
BusinessWeek, September 20, 2004
http://www.businessweek.com/bwdaily/dnflash/sep2004/nf20040920_8177_db049.htm

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