January 19 2011

30 Ideas for 30 Days: Day 10

Nicole Kurokawa Neily

The business environment has changed tremendously in the past two years. New health care requirements, taxes, financial and environmental regulations – it’s enough to make your head spin.

However, it’s also enough to create a fair amount of concern over what new rules, regulations, fees, and other policies may lie ahead!

Accordingly, many businesses are holding onto their money by freezing hiring and delaying purchases – because they don’t know if they’ll need additional cash on hand to pay the taxman. With businesses paralyzed by uncertainty, it’s no wonder the economy isn’t rebounding.

Therefore, in order to reduce some of this anxiety, the government should encourage businesses to invest in the equipment they need, when they need it – and not use the labyrinth tax code to unduly influence the spending behavior of private businesses.

Suggestion #10: Permanent, full upfront business expensing.

In general, business investments are subject to something called “depreciation,” where the cost of expenses can be deducted from a company’s total taxable income over a period of years (which also varies by expense type and business size!) The 2010 tax extender package contained one year of full business expensing – a great first step, but one unlikely to have lasting consequences since companies knew the policy was only in effect for a year (in order to take advantage of the policy, companies could have delayed their 2010 purchases, or may push up their 2012 purchases).

As Ryan Ellis of Americans for Tax Reform notes, “if a company purchases something, they should be able to write it all off the first year and lower their taxable income—be the ‘something’ a pencil, an employee, or a computer.  There should not be winners and losers in tax policy like that.  All new expenditures by a business should be treated equally and deducted.”

To really get the economy back on track, businesses need consistent rules that are evenly applied – to all companies, and for all expenses. Providing for permanent, full upfront business expensing would be a major step along in the right direction.

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