Revised January 25, 2002

Amendment Providing Second Year of Bonus Depreciation
Would Lessen Its Stimulative Effect
While Worsening Both The Federal And State Budget Deficits
by Edwin Park, Nick Johnson, and Andrew Lee

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Earlier today, the Senate rejected an amendment by Senator Gordon Smith (R-OR) to add a second and third year to the bonus depreciation tax cut included in the Daschle economic stimulus bill. On Tuesday, the Senate is expected to consider a similar amendment that would add a second year, but not a third year, to this business tax cut. The amendment expected on Tuesday, like the earlier Smith amendment, would render the package less effective as economic stimulus, worsen the federal budget outlook, and reduce state revenues at a time when states are already under severe budget pressures.

End Notes:

1. In addition, New York City and the District of Columbia would lose revenue from their own corporate income taxes. Including those amounts, the total loss to state and local governments would be $5.8 billion in 2002 and $5.5 billion in 2003.