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Friday, October 29, 2010

Administration Releases Report Outlining Benefits of Expensing Proposal in Encouraging Business Expansion, Hiring Now

President Obama will visit a business in Beltsville, Maryland where he will make remarks on the economy and discuss a new report issued today by the Department of the Treasury that details how the President’s proposal to allow businesses and investors to deduct immediately the full cost of most investments will help businesses expand and hire.

The report shows that the President’s proposal will:

Accelerate $150 billion in tax cuts to 2 million businesses: 100 percent expensing will accelerate $150 billion in tax cuts to 2 million businesses – providing $200 billion in relief over the next two years when combined with small business expensing and bonus depreciation provisions the President signed into law last month.

Lower the average cost of capital for business investment by more than 75 percent: Through temporary 100 percent expensing, Treasury estimates that businesses’ average cost of capital on new investments will fall from 7.18 percent to 1.68 percent – providing an incentive to pursue a broader range of investments through the end of 2011.

Produce about $50 billion in new investment: Studies of similar tax cuts in the past have found they encouraged businesses to increase targeted investments. Based on the results of one such study, Treasury estimates 100 percent expensing could support $50 billion in new investment, while other outside estimates have projected an even larger impact.

Today, the President will visit Stromberg Sheet Metal, a medium sized business in Beltsville, Maryland. Under the President’s proposal, a business like Stromberg would be able to take advantage of this proposal to invest in new equipment this year or next year and deduct 100 percent of that investment immediately. For example, if a business bought an additional $1 million worth of equipment next year, they would be able to deduct the full $1 million up front, potentially accelerating hundreds of thousands of dollars in tax cuts. That’s real money that businesses like Stromberg could use to expand or hire new workers right now, and provides a strong incentive to increase investment now, creating even more jobs.

The full executive summary of the report is below:

The Case for Temporary 100 Percent Expensing: Encouraging Business to Expand Now By Lowering the Cost of Investment;

100 percent expensing of qualified capital – also known as 100 percent bonus depreciation – through 2011 would:

· Accelerate $150 billion in tax cuts to 2 million businesses: 100 percent expensing will accelerate $150 billion in tax cuts to 2 million businesses – providing $200 billion in relief over the next two years when combined with small business expensing and bonus depreciation provisions the President signed into law last month.

· Lower the average cost of capital for business investment by more than 75 percent: Through temporary 100 percent expensing, Treasury estimates that businesses’ average cost of capital on new investments will fall from 7.18 percent to 1.68 percent – providing an incentive to pursue a broader range of investments through the end of 2011.

· Produce about $50 billion in new investment: Studies of similar tax cuts in the past have found they encouraged businesses to increase targeted investments. Based on the results of one such study, Treasury estimates 100 percent expensing could support $50 billion in new investment, while other outside estimates have projected an even larger impact.
 
Read the full report here.

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