The Problem with Bonus Depreciation
3 Pages Posted: 16 Feb 2010 Last revised: 19 Feb 2010
Date Written: February 12, 2010
Bonus depreciation encourages businesses to reallocate funds from labor to capital and thereby depresses the demand for labor. In periods of high unemployment, Congress should avoid enacting such provisions. More generally, when considering proposed tax incentives, Congress should insist on identifying the subsidized activity’s economic substitutes – those sectors or activities as to which the proposed provisions are likely to operate as a penalty.
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