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Goldman Sachs Bolsters Case Against Renewing “Bonus Depreciation” Tax Break

The business tax break called “bonus depreciation,” enacted in 2008 as a temporary stimulus measure, expired in December, and we’ve cited findings from the Congressional Budget Office, Moody’s Analytics, and others showing that it hasn’t been a particularly cost-effective way to boost the economy.  A recent Goldman Sachs analysis bolsters the case for letting this tax break, which allows businesses to take bigger tax deductions for certain new investments, stay expired.

The expiration of bonus depreciation “should have little effect” on the economy, according to the analysis, which states in part that:

“(1) low interest rates substantially diminish the present value of the tax deferral that results from bonus depreciation,

(2) there are multiple indications that firms do not respond strongly to this incentive, for various reasons,

(3) the tax benefit mainly accrues to a fairly small subset of overall corporate investment. . . .”

Congress should follow the lead of the President’s new budget and House Ways and Means Chairman Dave Camp’s tax reform plan, neither of which would restore bonus depreciation.  Congress should also follow Obama and Camp’s lead in a related area and fully pay for any of the corporate tax extenders that — unlike bonus depreciation — merit extension.

Chuck Marr
Vice President for Federal Tax Policy