Proposed Tax Policy Pivots Previous Stimulus Measures
On September 7, 2010 the Obama administration proposed a new tax program addressing capital investments. Under the proposal, US businesses would be allowed to deduct from their Federal taxes the full value of new equipment purchased through 2011. This proposal would build on the stimulus measures enacted in 2008 and 2009 allowing businesses to depreciate 50% of their capital investments. The Senate rejected this proposal, however, it did initiate two programs that may have an impact on business tax liability. First, rather than allowing 100% depreciation on new equipment purchased by businesses, the Senate reinstated the 50% depreciation bonus for 2010. Second, the Senate authorized an increase IRS Code Section (“Section”) 179 expensing levels to from $250,000 to $500,000 and the phase-out threshold amount from $800,000 to $2,000,000 for 2010 and 2011.
Obama’s policy reflects the administrations realization that its previous stimulus approach was misguided. Republicans have criticized this proposal stating that this policy does not address our big economic problems: excessive government spending and looming regulatory uncertainties. Democrats have also challenged this proposal because the long term depreciation periods currently utilized provide long term tax revenue that politicians need to finance their own spending programs. However, democrats are supporting this proposal as elections approach to favor reelection.
**Does this proposal reflect a genuine change in the administration’s tax policy?
**Is a 50% bonus depreciation for the next year going to incentivize businesses to invest in their companies or will tax liability uncertainty for small business continue to impede the governments stimulus efforts?
**Is it feasible that high net worth individuals may want to opt out of the 50% bonus depreciation to offset inevitable future increases in tax rates?