Is full expensing the right path for tax reform?

That is the topic of my latest Bloomberg column, here is one excerpt:

Since 2008, the federal government has extended “bonus expensing,” which allows for a 50 percent deduction for many investments and covers about two-thirds of all investment. There are already various expensing provisions for investing in equipment, advertising, and research and development, and many forms of accelerated depreciation. By one estimate, corporations in 2012 were able to deduct more than 87 percent of the value of their investments, over time. So moving to “full expensing” may not be a complete economic game changer.

If nothing else, full expensing would benefit businesses by accelerating when the relevant deductions could be taken (right away, rather than over a multiyear period), and for that reason it would boost investment. But that in turn benefits some kinds of businesses more than others. What about businesses that invest a lot today, but earn back the cash slowly and turn a profit only years later? Without a big tax bill, they won’t get a significant tax reduction now, which would blunt the benefits of full expensing. That’s OK, but again it means not to expect a miracle from tax reform.

And near the end:

But so often the devil is in the details, and the simple idea of applying economic logic to the tax code can be harder to pull off than it might seem at first.

Do read the whole thing.


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