President Obama’s 100% tax expensing of equipment is a fine one for both spurring economic growth and job creation, particularly if it includes computer software, and particularly if it also includes a first-year tax equivalent 35% investment tax credit option for the many companies that are in tax loss positions and thus can’t get the first-year tax benefit of 100% tax expensing.
But there is something else related to accelerated tax depreciation that would really help the US economy and job creation.
When you look around the country, and particularly so in the Rust Belt, there are all of these old Manufacturing Buildings everywhere, many of which aren’t being utilized or are clearly being under-utilized.
I think as part of this tax deal between the Obama Administration and the US Congress, there should be something that addresses the need for manufacturing building upgrades. And I have a way to do it with very little, and perhaps even no, CBO-scored cost over the next ten years.
Presently, real property tax deprecation is over many years, much longer than the 10 year CBO scoring period.
What I would consider doing is to allow businesses that make building improvements, to get first-year tax expensing of the entire first 10 years of tax depreciation allowed presently under the tax rules. Thus, they wouldn't be allowed any tax depreciation deduction on this building improvement in the next 9 years. The tax basis of the property reduces for the first-year tax depreciation taken. And then, all tax depreciation taken after the first 10 years under present tax law, would be dramatically accelerated in some fashion, such as by cutting the remaining tax life in half, and thus doubling the annual tax depreciation starting in Year 11.
This highly incentivized scheme doesn’t change total real property tax depreciation, it just accelerates it dramatically from Years 2 through 10 to Year 1. And it also accelerates it starting in Year 11. Because you are just moving total tax depreciation around among years, there shouldn’t be any long-term CBO scoring cost to the US government for this initiative.
And then to really help the Rust Belt, I would also let them choose a first-year tax equivalent 35% investment tax credit, in lieu of the first-year real property tax depreciation resulting from this initiative. And if a company chooses this 35% investment tax credit option, it would not be allowed any tax depreciation deduction in the first 10 years.
It wouldn’t just be the Rust Belt really helped by this initiative. All businesses throughout the country should be able to take advantage of it.
I’d even consider allowing the same real property highly accelerated tax depreciation scheme for all new Manufacturing Buildings. Again, there shouldn’t be any CBO-scored cost over the 10 year CBO scoring period, because you are just moving tax depreciation deductions around among years, with total tax depreciation not changing.
I can think of no tax incentive that would do a better job of quickly re-energizing the troubled US manufacturing industry than this real property massively accelerated tax depreciation scheme, particularly in combination with President Obama’s wise first-year 100% tax expensing of equipment and computer software initiative, particularly if both the real property and tangible personal property have first-year tax equivalent 35% investment tax credit options to help troubled companies in tax loss positions and also to help many smaller businesses.
Also, the very troubled construction industry will be helped immensely from all of these Manufacturing Building and Other Building upgrades, which will occur all throughout the country under this tax initiative. I’d even consider giving some green energy tax credits here for these Building improvements, but that would have a CBO scored cost, but it would be worth it to the country, desperately seeking energy independence.
