Tuesday, September 07, 2010

Finally, a tax cut for businesses

The NYTimes reports Obama will propose 100% expensing for new equipment purchases for the next 15 months.  This really should have been in the original stimulus  bill—why wasn't it?

One item puzzles me.  The initial "cost" of the proposal is listed as  $100 billion for the  extra tax deductions.  However, the  ten-year cost is  only $30  billion, because the purchases would have  been fully depreciated anyway.  Why isn't the  ten-year cost then zero?  Because of the  time  value of money?  But  at  today's interest rates, the time value of money really isn't  that large, is  it?

And wouldn't the additional economic activity swamp the "cost" with new tax revenue? 

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