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Financial Planning > Tax Planning > Tax Reform

Obama Threatens to Veto Bonus Depreciation Extension

By Melanie Waddell

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The Obama administration said Thursday that it would veto H.R. 4718, a bill passed by the House Friday that makes permanent the extension of bonus depreciation, which allows all businesses to immediately deduct 50% of investment in equipment and software.

The administration said that it “strongly opposes” House passage of H.R. 4718 to permanently extend bonus depreciation rules that allow corporations to speed up deductions for certain investments and thereby delay tax payments, as the provision was enacted in 2009 “to provide short-term stimulus to the economy, and it was never intended to be a permanent corporate giveaway.”

Moreover, the administration said that the bill includes “no offsets and would add $287 billion to the deficit over the next 10 years, wiping out more than one-third of the deficit reduction achieved by the American Taxpayer Relief Act of 2013.”

The administration noted that while it “wants to work with the Congress to make progress on measures that strengthen the economy and help middle-class families, including pro-growth business tax reform,” making “costly business tax cuts permanent without offsets represents the wrong approach.”

However, a recent study released by the nonpartisan Tax Foundation finds that adding bonus depreciation expensing to the tax code overhaul plans laid out by Rep. Dave Camp, R-Mich., would improve the economic effects of that proposal, increasing the resulting economic growth to over 1.8% (up from 0.2%), adding 780,500 jobs (up from 486,000), and increasing wages by over 1.1% (up from -0.21%).

“Bonus expensing would produce significant gains in capital formation, wages, and employment,” the Tax Foundation writes. “These gains in national income would result in higher tax revenues for federal, state and local governments. The adoption of permanent bonus expensing is a costless way of improving economic performance and raising living standards.”

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