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POLICY INSIGHT
BEYOND THE NUMBERS

Tying Jobless Benefits to Corporate Tax Cuts Would Be Inappropriate

Key House Republicans reportedly want to tie resuming federal unemployment insurance to extending various corporate tax cuts — including permanent extension of “bonus depreciation.”  Policymakers should reject any such effort, given that permanently extending bonus depreciation:

  • Entails huge cost.  Permanently extending the tax break, which allows businesses to take bigger upfront deductions for certain new investments, would cost $263 billion over the next decade, according to the Congressional Budget Office (CBO).
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    Has little bang for the buck.
     Enacted in 2008, bonus depreciation was among the weakest federal measures to promote jobs and growth in the Great Recession.  Mark Zandi of Moody’s Analytics rated it near the bottom of a wide range of stimulus options, estimating that it delivered only 29 cents of additional gross domestic product (GDP) for each dollar of budgetary cost.  (Zandi rated unemployment benefits near the top, estimating that it delivered $1.55 of additional GDP per dollar of cost; see chart.)

    CBO has reached similar conclusions.  Also, the Congressional Research Service in 2013 cited studies by the Federal Reserve and others as providing “additional support for the view that temporary accelerated depreciation is largely ineffective as a policy tool for economic stimulus.”

    Most recently, Goldman Sachs noted “multiple indications that firms do not respond strongly” to bonus depreciation and concluded that its expiration “should have little effect” on the economy.

    It’s also worth noting that bonus depreciation only stimulates economic growth and job creation at all in a weak economy if businesses expect it to be temporary and thus accelerate their investments before it expires.  Permanently extending the tax break would eliminate even this weak effect.

  • Is at odds with recent tax reform efforts.  The recent plan from House Ways and Means Chairman Dave Camp (R-MI), like most other tax reform plans, moves in exactly the opposite direction, scaling back or eliminating various depreciation tax breaks.

Instead of using the plight of Americans who’ve been looking for work for at least six months as a bargaining tool to enact ill-advised corporate tax cuts, the House should quickly pass the Senate-approved bill to renew emergency unemployment insurance.

Chuck Marr
Vice President for Federal Tax Policy