As it now stands, the provision for bonus depreciation stops at the end of this year. Until January 1, 2013, companies that purchase and put into service qualifying property, such as equipment and software, can deduct 50 percent of its cost from their taxable income, as this IRS summary of the regulations outlines.
Companion bills introduced in the Senate and House, S. 2240 and H.R. 4196, would provide for a 100 percent bonus depreciation provision through the end of 2012. S. 2240 was introduced by Senator Debbie Stabenow (D-Michigan) in March and has three co-sponsors. H.R. 4196 also was introduced in March, by Rep. Patrick Tiberi (R-Ohio), and has 48 co-sponsors from both parties.
Approximately 80 business groups and companies have thrown their support behind the bills as well. Earlier this month, FedEx, John Deere, the National Association of Manufacturers and the Western Business Roundtable wrote the leaders of the House and Senate in support of the proposals. "As our economy continues to struggle, this much needed legislation restores the 100 percent bonus depreciation through 2012 and provides a real incentive for businesses to make significant investments here at home," the letter states.
Still, studies of the economic impact of past rounds of bonus depreciation provisions have shown mixed results. A 2010 study by David Hulse of the University of Kentucky and Jane Livingstone of the University of North Carolina at Greensboro came to this conclusion:
"We expect that capital expenditures will be greater during bonus depreciation's availability than before or after it. We find some evidence consistent with this expectation, but we also find some evidence of an insignificant effect. These results weakly indicate that bonus depreciation stimulated capital spending and suggests that Congress may be furthering its goal of stimulating capital spending when enacting depreciation tax incentives, but the mixed nature of the results mean that such a conclusion should be reached cautiously."
The Tax Policy Center offers a few explanations for less-than-stellar showings of bonus depreciation legislation: companies need to take their time before making significant capital investments, making it difficult to fit them into the periods covered by the bonus depreciation provisions; if businesses come to expect the bonus depreciation extensions, they have less incentive to invest immediately; and businesses with little income (as may be the case with the recent recession) have little use for the tax benefits.
The bills' chances of passing, as with any bill's, are slim. GovTrack notes that just 3 percent of bills introduced in the House and four percent of those introduced in the Senate became law during the 2009-2010 session.
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