2013 Small Business Tax Deductions, Bonus Depreciation and National Transportation Projects

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[Update Jan 2013] Congress and the Obama administration have reached an agreement that will extend a number of small business tax breaks through 2013 following the fiscal cliff deal which was legislated through the Taxpayer Relief Act of 2012. You can see details of the extended tax breaks in this article.

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[Update Sep-Oct 2010] Obama’s Small Jobs Bill has been approved and you can find more details in this post.

In an effort to provide a sustained job creation program, President Obama called for Congress to approve major upgrades to the nation’s roads, rail lines and runways — part of a six-year plan that would cost tens of billions of dollars and create a government-run bank to finance innovative transportation projects. He also wants to allow businesses to deduct from their taxes through 2011 the full value of qualified capital investments, from computers to utility generators, to boost demand for goods and create jobs.

“We used to have the best infrastructure in the world and we can have it again. We want to reform the way we fund and maintain our infrastructure to focus less on wasteful earmarks and outdated formulas, and we want competition and innovation that gives us the best bang for the buck,” Obama said, adding “this is a plan that will be fully paid for, it will not add to the deficit over time – we’re going to work with Congress to see to that.”

Small Business Capital Tax Deduction – 100% Expensing or “Bonus Deprecation”

By allowing a 100% deduction of capital investments, businesses of all sizes will be allowed to keep more money now and would give large corporations, many of which are sitting on cash due to uncertainty about the economy, an incentive to spend and invest; thereby creating new jobs. This measure, an expansion of a previous tax incentive designed to encourage businesses to invest in equipment, would cost an estimated $200 billion in revenues though the ultimate net loss would be $30 billion over 10 years, according to administration officials, since businesses would eventually deduct the depreciated value of the equipment in any case. A draft paper on the proposal permitting businesses to write off the full costs of capital spending in 2010 and 2011 said it “would be the largest temporary investment incentive in American history.”

The provision also seeks to expand and make permanent a tax credit for corporations’ research and development expenses; for three decades the credit has been enacted temporarily given its revenue cost and then always extended, but with frequent lapses that frustrate businesses.

Transportation Projects Stimulus Spending

The transportation or infrastructure stimulus calls for a quick infusion of $50 billion in government spending that White House officials said could spur job growth as early as next year — if Congress approves. The plan includes rebuilding 150,000 miles of roads; building and maintaining 4,000 miles of rail lines and 150 miles of airport runways, and installing a new air navigation system to reduce travel times and delays. Central to the plan is the president’s call for an “infrastructure bank,” which would be run by the government but would pool tax dollars with private investment to focus on paying for national and regional infrastructure projects.

President Obama will soon outline more details on the above proposals, including more stimulus ideas, and I will update this post as more details emerge. You can subscribe (free) via Email or RSS to get the latest updates.

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{ 13 comments… read them below or add one }

Jeff Godl September 20, 2010 at 2:25 pm

According to the Tax Policy Center – here’s how the bonus depreciation is rated.

Providing temporary increases in depreciation allowances for certain equipment and software investment has become a staple of economic stimulus proposals. More generous depreciation deductions reduce the after-tax cost of investing, encouraging higher levels of investment spending by taxable businesses. The temporary nature encourages firms to accelerate otherwise planned investment spending forward when the economy is in most need. Furthermore, by merely changing the timing of tax deductions, bonus depreciation can deliver a large short-term “bang” for a relatively low long-term “buck.”

However, economic research suggests that bonus depreciation enacted in 2002 and 2003 had relatively modest effects (CBO 2008). There are at least three reasons why: Businesses may have expected that Congress would extend the provisions, thus blunting their incentive to speed up investment. It takes time for businesses to make major investments, making it hard to fit them into specified time periods. Finally, many businesses may have had too little income to offset with these additional tax benefits, a problem that is especially acute during economic downturns.

As recent history has made clear, Congress can turn bonus depreciation on and off as economic circumstances dictate. Paradoxically, that flexibility could render the policy less effective. If businesses expect that Congress will extend the provision as it has in the past, they may not accelerate their investment. As a result, the benefits of the provision may accrue primarily to investment that would have been made anyway, thereby undercutting the cost effectiveness of the tax incentive.

The temporary nature of the provision increases its strength as a stimulus but necessarily reduces its long-run impact. Expiration of bonus depreciation raises a firm’s net cost of new investment back to its previous level and removes any further incentive to invest now rather than later. In fact, because the provision primarily leads businesses to move their investment up in time and not to increase overall investment, it may lead businesses to reduce investment when the provision expires. If the economy is still in recession at that point, this could be especially undesirable.

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Raj September 17, 2010 at 3:40 pm

I was reading the news re. Obama’s Small Business Accelerated Depreciation…100% Expensing of Capital Items

Anyway if you were planning to do a blog on it, you can compare to Australia’s experience

I honestly believe one of the major factors that kept Australia out of recession was the “Investment Tax Break”.
Australian Businesses still claimed normal depreciation on any depreciable asset
However Smalll Businesses got a 50% bonus deduction (on top of normal depreciation) on any asset over $1000
Larger Businesses (turnover over $2mil) got a bonus deduction of 30% (on top of normal depreciation) for anything over $10,000

From my experience it got a lot of businesses to bring forward capital expenditure,
Thereby stimulating the economy AND improving long term productivity

From my understanding – I think the Obama version is flawed, as there is no major incentive to bring forward investment
Yes you get tax deduction straight away – But chances are small businesses are in loss anyway
So by the time they get their tax benefit, it is the same as writing off the asset slowly

Over here it was a BONUS on top of depreciation…. and many businesses came to the opinion that even though the economy was uncertain the bonus deduction made bringing forward capital expenditure planned for 1/2/3 years down the track was worthwhile…

Anyway my two cents

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David September 11, 2010 at 2:25 pm

Bama is so desperate now. I guess that we have to wait for several years to recover even after bama is gone.

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rick February 19, 2011 at 11:11 pm

well if we get bush back your looking at about 30 years . He got us into this mess David unless you have been sleeping these last 12 years .

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Margie September 7, 2010 at 9:33 am

Even if Congress quickly approved the program, it would not produce jobs until sometime next year. That means the proposal’s only pre-election impact may be a political one as the White House tries to demonstrate to voters that it is working to boost the economy and create jobs.

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SamSmall September 6, 2010 at 11:54 pm

There is something cancerous in the argument that President Obama is anti- rich and anti-wealth. A lie anxiously and avidly promulgated by the hoarders of our National Wealth. Wealth is never created in a vacuum. It takes a nation of people – working people- to create wealth. The upper classes of any society have always balked at admitting this fundamental truth as well as their dependence on the power of production of the working classes – blue and white collar. You can see the blazing ego centrism of the promulgators of the trickle down economics theorem: The statement claims that without the rich and financially privileged upper class, our country is doomed. They are the ones with their lies and propaganda being spineless Republican wits to spew their vitriol for them. Wake up America -without exploiting the working people with fear, threats and all manner of intimidation ( like we won’t hire you or expand our financial empires until you do as we say and give us what we want) these “entitled and privileged” few could never hold our National wealth hostage. The fundamental truth is that it is without the mass workers these people would have NOTHING! Stop letting your self be exploited. Working people have needs. And this is what the greedy exploit. Not all wealthy people are greedy and wealth and greed are not synonymous. It is not money that is evil. Greed uses money to it;s own advantage at the expense of another. The greedy will hoard whatever they can in this case our national wealth. Our largest banks today hold nearly 70% and more of our National GDP. 20 years ago they held only 25%. Now there is something seriously wrong here.

What the disgusting rhetoric of trickle down economics does is rip at the dignity and confidence and thus self esteem of each employed individual. The hidden text in trickle down economic theory is that without my wealth you have no value. These people have almost succeeded in getting us to believe this grotesque lie!. Just look at the current crisis: the rich have gotten richer and the big have gotten bigger. They did it by devaluing millions of working Americans. Now this is an injustice and crime that the Republican leaders and politicians need to be held to Account for. The Republicans were willing and continue to be willing to lie to the American voter to fulfill the demands and entitlements of “privileged ” class They committed a crime – a crime against working Americans. Working American’s need to take their right to success back from this cancerous and greed infested group of people. Let’s let the Republican’s know that we know that their Emperor has no clothe!

If you take the time to study the history of civilizations you will discover that they implode when their “upper entitled elite” gets too top heavy. This is the real threat to America’s future.

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Ernie September 6, 2010 at 11:52 pm

The problem is that is the exact opposite of what this country’s economy needs to recover. It’s really a catch 22 if you will. We don’t spend the economy does not grow. Remember the oil companies provide jobs from the guys on the oil rigs down to the person working at the service station/quickie-mart. Combine that with typical American greed and the price of fuel will go up and we will pay for it because we now have jobs. Most people out there will be rich for the moment and not realize that these jobs Obama is wanting to create are not long term jobs that “could” be created by small and big businesses alike, but relatively short term jobs by comparison. Once again Obama is playing us for fools as he did with his string of broken promises in 2008 to try to get us to vote Democrat in November 2010. If this were not and election year we would be seeing the same emphasis on creating the promised jobs as we did last year.

Now in saying this I am not advocating voting Republican Vs Democrat. I am saying we need to get people in Congress who owe loyality to those who put them into office not a political party or a single person like Obama. If given the chance the American Free Enterprise System can (and has before) fix the economy. What we need to do is put the Federal Government back in it’s place as described by the Constitution of the United States and that is a relatively small roll instead of a ever growing roll they are playing now.

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Composer September 6, 2010 at 11:52 pm

Some people do have to drive to work. There are also a lot of people who drive to work because it is easier than walking, biking, or taking a train.

When I lived in Buffalo, I started biking to school and work every day from April – November, a modest 8 mile ride. In the winter, I left earlier and took subway & bus instead of driving. When I calculated it out, I saved over $2000 per year.

I’m always amused by so-called fiscal conservatives in this country who want the government to stop spending money, but are too lazy to figure out how to conserve their own. How did giving oil and gas companies massive tax breaks become ‘fiscally conservative’ anyway? When a true fiscal conservative candidate presents themselves, they won’t stand a chance of getting elected.

There are no fiscal conservatives in our government right now. The Republicans will spend our nation to death by cutting taxes, but will continue to spend like drunken sailors on misguided military adventures and corporate tax breaks. Please stop pretending that the Republicans are any more fiscally conservative than the Democrats. If anything, they are worse.

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ellen September 6, 2010 at 11:51 pm

Money could also be spent for so many worthwhile things. Colleges and Universities struggle, VA Hospitals need improvement, the Parks Service is in desperate need of funds. We need to educate more nurses and doctors (there is a shortage). There are a miryad of things that need to be improved in this country.

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Justyn September 6, 2010 at 11:50 pm

He complains that the GOP won’t agree with him, but wouldn’t work with the GOP when it came to his health care bill.

There were many other instances, but that one is the biggest.
Now that the Senate doesn’t have the 60% to pass through his agenda, he can only name call.

How about proposing something that isn’t loaded with special interest payoffs?
This guy is only a single term president anyway and he just wants to make sure our economy is totally dead before he leaves office.

I would have a lot more respect for him if he wasn’t so set in his socialist agenda. Our government is a give and take. He only wants it one way, his way. What will he do when the dems lose the house?

I would hope that he would actually work with the GOP, but he is so arrogant, he’ll just go back to the Blame Bush statements.

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Fred Pryor September 6, 2010 at 11:50 pm

Woof, Woof Mr Obama. People talk about you like a dog because you bark louder than you bite. Get some real immediate reform in and the right will respect you more. All talk and no action makes you a lazy…

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Verson September 6, 2010 at 11:47 pm

It was “Stimulus” and “Bailouts” that turned a recession into the Great Depression decades and it is Stimulus and Bailouts that are turning another recession into another Great Depression.

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Philly September 6, 2010 at 11:46 pm

Like a terrible remake of Groundhog Day, the White House has unveiled yet another so-called stimulus scheme

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