President Barack Obama has proposed a 100 percent bonus depreciation business tax incentive for 2011 to encourage business investment. Obama also wants Congress to make the research-and-development tax (R&D) credit permanent. The official announcement of his plan was made during a political speech Wednesday in Parma, Ohio.
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Obama will ask Congress to allow companies to deduct the full cost of new investments they make in plants, equipment, and investments other than real estate. The deduction would be available retroactively to businesses from the date of his September 8 speech.
Obama’s business tax credits are not likely to become law any time soon, however, with Congress returning for only a few weeks before mid-term elections, but candidates from both parties can use them to score points in their campaigns. Republicans likely will call the proposals a new stimulus package and Democrats will accuse Republicans of obstructionism.
"The White House is missing the big picture,” said House Minority Leader John Boehner (R-Ohio) in The Wall Street Journal. “These aren't necessarily bad proposals, but they don't address the two big problems that are hurting our economy – excessive government spending and the uncertainty that Washington Democrats' policies, especially their massive tax hike, are creating for small businesses."
Many business leaders are looking to extend the tax cuts of 2003.
The administration claims that the bonus depreciation proposal would cut business taxes by $200 billion right away, leaving them with money for capital purchases, but would only cost $30 billion over ten years because businesses would not be claiming normal depreciation.
Besides seeking a permanent research credit, which will cost approximately $85 billion, according to a New York Times report, Obama will ask Congress to expand the simpler of two credit options now available to businesses. He would increase that to 17 percent from 14 percent. The increase would cost $15 billion.
The total cost of the president's economic proposals, including an investment of $50 billion for infrastructure, would be approximately $180 billion over 10 years, Robert Gibbs, the administration’s spokesperson, told reporters.
Paying for a larger percentage of depreciation up front is not a new idea. The Economic Stimulus Act of 2008 allowed small businesses to write off the value of investment up to $250,000, in the year the asset was purchased, for 2008 and 2009. Larger companies were permitted to claim 50 percent of an asset’s basis as bonus depreciation. The regular depreciation could then be claimed on the remaining 50 percent over a period of three to 20 years.
In 2002, Congress passed legislation allowing businesses to deduct 30 percent of depreciation over three years to counter the effects of the economic slowdown that followed September 11. The rate was increased to 50 percent in 2003.
A 50 percent depreciation deduction for 2010 is part of the Small Business Jobs and Credit Act now pending in the Senate.
Making the R&D credit permanent has been a popular idea for a long time, but Congress has been unable to agree on ways to pay for it. Instead, in what has become a late-autumn ritual, Congress makes hollow threats for weeks and then extends the credit in a bill that often includes a cost-of-living increase to alternative minimum tax (AMT) thresholds. Last year, Congress patched the AMT for two years, but let the R&D credit lapse.
The president will ask lawmakers to close corporate tax breaks for multinational corporations and oil and gas companies to pay for making the credit permanent.