At Bloomberg Karl W. Smith proposes something I think is a pretty darned good idea:
The coronavirus has U.S. businesses grappling with enormous uncertainty, making them cautious about new investment. At the same time, without increases in private investment and capital spending, the overall economy won’t be able to make the structural changes required to prosper in a post-pandemic environment.
What’s needed are policies that both spur investment now and put the economy in a better position for long-term growth. One idea that should be part of the debate is to allow the permanent full expensing of all capital investments.
If you think of this change as a relatively minor detail, consider the big picture: The Federal Reserve currently has limited ability to use interest rates to stimulate investment. In a crisis such as this, typically the Fed would lower short-term interest rates to reduce the cost of borrowing. That would then set off a virtuous cycle: Capital expenditures would increase employment, which would increase spending, allowing more businesses to expand, and so on. That option isn’t available because short-term interest rates are already at zero.
If you’re not willing to abolish the business income tax entirely, current year expensing of capital expenditures is the next best thing. The corporate income tax is an inefficient tax. It actually falls on workers and consumers. Remember that the next time you hear political posturing about corporations “paying their fair share”.
Nearly all major developed countries allow current year expensing. We are absurdly behind the times.
I would like to see something a little more targeted than what Mr. Smith proposes but it’s close enough for government work as the saying goes. I think that we’re likely to see more capital investment within the U. S. to the extent there is capital investment at all.
Income is income. Where it comes from should be irrelevant. Capital gains tax only came about to offset the income tax paid by businesses, which is effectively a tax on a tax. No tax on businesses, tax only on people, eliminate the capital gains tax. The only people who will be unhappy are tax preparers and bureaucrats.
I would go further, using IRS calculations showing what people pay on average by income cohort, eliminate every deduction whatsoever. and make the 1040 easy enough for even me to fill out by myself. Social engineering through taxation is incredibly stupid and wasteful.
I don’t know if you meant the tax falls on workers and consumers only, or workers and consumers, and not capital only. You can also put in suppliers since its all one big negotiation. The incidence is part unknown and part situational. It falls on all of them; and ultimately they are all people, not pieces of paper filed in Delaware.
Your idea in my opinion is long overdue. The only issue with it at this particular point in time is that there may be no income for many to offset with the accelerated depreciation. I’d still do it. Its simply a cash flow matching vs GAAP driven useful life matching concept.
If I run a large non profit or am a company executive on a lavish expense account I can live as large as you want and pay no income taxes.
Or I could go online and buy myself a theological degree and become a minister. Sell colloidal silver belly wash to cure the virus and pay no income tax.
Clever, conscience free people don’t pay any more in than they want to.
That went away during the Carter Administration.
Life is a non-stop and torrential series of choices, grey. May you choose wisely and in conformity with your values. May you be happy with your choices. But don’t force those values and choices on others.
Carter? God. Nose to the grindstone.
No one told me.