Trump tax plan expends recession-fighting US business tax break

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President Donald Trump’s tax plan would let US companies take bigger, faster deductions on capital investments, a step some experts said would deplete Washington’s policy arsenal by using up a tax break normally reserved for fighting recessions.

By putting a five-year “immediate expensing” provision in his plan, Trump handed a win to some businesses, especially capital-intensive ones such as oil drillers, that could gain from it through savings on new plant and equipment purchases.

While some industrial sectors might get a short-term boost from the tax break, critics said its wider business impact was unclear, as was whether it is needed with the economy slowly but steadily growing and investment capital abundant.

Some experts saying that the Trump's five-year immediate expensing policy could set up a capital investment hangover in late 2022 or 2023 by shifting private-sector plant and equipment purchases into the five years covered and out of later years.

US President Donald Trump /CGTN Photo

“It’s hard to see how moving to full expensing, except at the margin, would produce the growth that they’re looking for from this provision,” said corporate tax analyst Robert Willens, formerly an executive at KPMG and Lehman Brothers.

Immediate expensing lets companies take a tax deduction for the full value of new plant and equipment upon purchase, rather than stringing out deductions over several years under accelerated or normal depreciation schedules.

Federal tax revenues would be slashed under Trump’s plan. An estimate of immediate expensing’ s revenue impact earlier this year was for a loss of 2.2 trillion US dollar over a 10-year window, according to the Tax Foundation, a business-focused group that supports making immediate expensing permanent, not temporary.

Scott Hodge, president of the foundation, said permanent expensing is needed if Trump wants to meaningfully boost economic growth. ”The only way to get there is by having permanent immediate expensing for all capital investments, not a short-term policy that robs investment from the future.

VCG Photo

”Only then do you get the long-term increase in investments that boost productivity, wages and GDP,” Hodge said.

Immediate expensing was put in place under former Democratic President Barack Obama for qualified investments between September 2010 and January 2012, part of his recovery program after the deepest US recession in decades.

After 2012, immediate expensing was cut to 50 percent of new investment through 2017. It has been slated to decline in phases to 40 percent in 2018 and 30 percent in 2019. Trump’s plan would bring it back up to 100 percent through late 2022.

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Source(s): Reuters