Wow. Alan Grayson needs to read up a bit on what accelerated depreciation means.

[BzaDem]

He just said on Lawrence O'Donnell that the current tax bill would be a repeal of the corporate income tax, because the revenue brought in by it (150 billion) would exceed the total revenue of the tax.

That is blatantly false. Accelerated depreciation is NOT a new tax deduction. It accelerates a tax deduction that was already given over a period of years. Under the new provision, the 150 billion is the amount that will be deducted in 2011-2012, but if no provision were passed, they would deduct the same amount over a period of many more years. So to argue that this is somehow a 150 billion tax cut for corporations is plainly false.

It reduces the time it takes to write off equipment -- not the amount that would be written off. They only thing businesses get out of this is essentially interest on their write-off.

Edit: Looks like the rest of the panel is demolishing Grayson's argument. I'm glad that the false point didn't stand unrefuted, though it would be nice if Grayson could learn this stuff before he gets on TV rather than on live TV.

[OhioBlue]

1. accelerated depreciation is also targeted and smart stimulus. n/t

[MannyGoldstein]

2. It's a 150 Billion tax cut over the next two years

And we'll be borrowing money against that.

[BzaDem]

3. But it means they will be paying 120 billion MORE in the next 18 years that they wouldn't have

otherwise paid (since they won't be able to write it off year by year like they normally would). The only actual cut here is the 30 billion of interest on the write-off.

[MannyGoldstein]

4. When was the last time a 'temporary' tax cut on businesses or the rich

was not re-instituted?

This is a huge win for the crazy-right.

[BzaDem]

6. Accelerated depreciation happens all the time, and NOT ONCE have they passed a bill that allows them

to write off the same equipment value on multiple tax returns. That's basically what you are saying: that in the future, a business will be able to deduct a 150 dollar widget entirely in 2009, AND again in a future year. That is laughable, it has NEVER happened in the history of this country, and you are wrong.

[MannyGoldstein]

7. That's not what I'm saying

Let's put this another way: why do we have depreciation at all? Why not let businesses always write off everything immediately?

[BzaDem]

11. Because we only deduct for assets that lose value and provide income to the business.

For example, we don't allow write-offs of a hypothetical gold bar that doesn't lose value. Likewise, we wouldn't allow write-offs of something that keeps all of it's value and isn't used to produce any income.

On the other hand, a piece of equipment does provide value, and does lose value over time (so that loss in value can be deducted over time).

So I'm not disputing at all that this is indeed a corporate tax cut. I'm just pointing out that the only reason it is a cut, is because businesses can write it off now rather than later. So the value of the cut is not 150 billion that Alan Grayson said -- it is the 30 billion in interest they save from getting the write-off immediately. The reason we are doing this is to get people to move investment from the future to now, when demand is perilously low.

[OlympicBrian]

14. If demand were "perilously low" why would corporate profits be at a record?

If demand were "perilously low" why would corporate profits be at a record? And hence, why would business need yet another tax cut?

[BzaDem]

16. Demand being extremely low is completely consistent with record corporate profits.

A profit does not necessarily come from higher sales. It could come from relentlessly cutting costs and laying people off (and this is true for this economy).

If a business does not see any increase in sales (or sees a decrease), but lays off half their workforce, they get a HUGE boost in profit. But that does NOT indicate a boost in demand.

Right now, we have a vicious cycle where people stop spending/consumption, and therefore businesses stop hiring. Therefore, people stop consuming even more, and businesses lay more people off. And on and on.

To get this cycle to stop and reverse itself, we need one of these two parties (businesses and consumers) to blink (or preferably both). Therefore, incentives to get business to SPEND their corporate profits can be a good thing, and tax cuts to the poor and middle class to get them to spend can also be a good thing.

[OlympicBrian]

17. No, they hire in China and India, and temp workers in the US

I've examined the investment and employment numbers directed into these areas.

[BzaDem]

18. Even if that is true, that still doesn't dispute what I said.

SOME businesses are hiring Americans, and more spending puts that money to better use (rather than sitting in a US Treasury bond doing nothing).

[OhioBlue]

19. corporate profits are high and they're sitting on cash

that's true... but if you look at small/medium even large businesses that are looking at having a decent year and thinking about buying that new CNC machine, honing equipment or paint booth or whatever.. what would incentivise them to make that purchase now? Answer - accelerated depreciation. What happens when they make that purchase? hopefully an American company gets the business - some work is created for those installing it and jobs are created to run the new machinery.

We can find a lot of things to criticize in the tax deal - but accelerated depreciation is smart stimulus. It is also only a tax cut in the way that a company can write off a purchase - accelerated depreciation just means they can take the deduction sooner rather than later.

[OlympicBrian]

21. Yes but it makes future comparisons more difficult, as well as drawing on the deficit nt

[OhioBlue]

23. Unemployment benefits and food stamps draw on the deficit

but we all recognize that not only are they humane, but they are smart stimulus. Accelerated depreciation is also smart stimulus and a way to create jobs. Plus the net of the effect on accelerated depreciation is minimal when you look at the fact that companies are just writing off now what they could have over 5-20 years.

[OlympicBrian]

24. Look, the problems are structural

Attempting to put the country on steroids for one year is not the answer.

[OhioBlue]

26. it is called stimulus

of course the problems are structural. But we still need stimulus. We can't do one and ignore the other. In this economy we need stimulus now. In our Country we need to work on the structural - but when you have an unemployment rate flirting with 10% - you do in fact need the so called steroids.

[OlympicBrian]

27. US 1.1 mill employees manufacturing, China 100 mill

Whole range of products US doesn't make anymore, too. Where do you think new capital equipment will come from?

[Hello_Kitty]

5. But we can't predict with certainty what will happen in the next 18 years.

Does this plan require a corporation to pay back all that accelerated depreciation if they up and reincorporate in Dubai two years later?

[BzaDem]

9. If they sell or dispose of the asset to some other corporate identity, they have to pay it back. n/t

[OhioBlue]

25. are they transfering the asset to Dubai?

are there still people in the US running the CNC machine that they purchased? If they dispose of the asset, my understanding is they would have to account for the accelerated depreciation in their accounting which would in effect make them pay it back in taxes. Your premise is a bit above my accounting knowledge. In all honesty, I don't really understand how the multi nationals incorporate in places like Dubai and avoid US taxes.

In all honesty again, I don't think this is aimed at those likely to reincorporate in Dubai in two years. If they're that big, they probably already have teams of CPAs that show them how to avoid taxes. I think this helps the smaller manufacturers, the job shops, etc. that have like 10 - 250 employees. This gives them an incentive to expand, hire and thus helps the economy and creates jobs. This is smart stimulus.

[Hello_Kitty]

28. I'm not sure about it either.

Even if they incorporate in another country they should still be on the hook for fed'l taxes for profits earned on income generated from properties and equipment they have here. But, like you say, the big corps have sophisticated ways to avoid taxes. That's why that while I understand your point about the stimulative effect of accelerated depreciation, I'm leery of handing Big Bidness $150bn right now.

[Hannah Bell]

30. if the republic survives that long. hoover *cut* taxes on the rich, fdr *raised* them.

hoover wasn't reelected; fdr was.

tax cuts on wealth during a depression is a ticket for more depression.

overconcentration of wealth is the root cause of economic crisis.

accelerated depreciation = more tax cuts for the rich during a depression.


http://taxhistory.tax.org/thp/readings.nsf/ArtWeb/65D62AC290A5E538852574CE00735F76?OpenDocument


Hoover's Tax Cut

When it comes to taxes, Hoover is best remembered for the Revenue Act of 1932, the largest -- and most poorly timed -- peacetime tax increase in American history. By almost any reckoning, it made the Depression worse, not better. But in that pre-Keynesian age, most policymakers -- including Hoover -- believed that deficits were an obstacle, not a means, to recovery.7 (For more on the 1932 revenue act, see Tax Notes, Sept. 1, 2003, p. 1201, Doc 2003-19534, or 2003 TNT 170-30.)

The 1932 act was not, however, Hoover's first venture into tax revision. In October 1929, just a few weeks after the great stock market crash, he asked Congress to cut taxes, not raise them.

[OlympicBrian]

8. It's a dumb provision like the home-buyer write-off was

What happened after the home buyer write-off expired?

These stupid measures do nothing structurally--they're just meant to provide a "kick the can" effect until the next election.

And they're a direct draw from the US Treasury.

[BzaDem]

13. Keynesian economics says that it is better to move demand from the future to the present when we

have a huge output gap and are approaching a deflationary spiral. This is to prevent a download vicious cycle that wouldn't otherwise happen.

If we were in a good economy, you would be correct that it would be useless and possibly counterproductive. But in a bad economy, preventing the unnecessary downward spiral is key.

[Scruffy1]

10. I'll go with grayson on this

not because you are wrong, but once you put the accelerated depreciation in place two things happen. First it is nearly impossible in our system to end a "temporary tax break" -in case you haven't been watching the fight over the Bush temporary tax cuts. Secondly, business will turn over equipment faster to keep the depreciation rolling in. Of course that's the point of the tax credit--too increase spending, but I have the hunch it will pay for a lot of Grumman Gulfstreams and Escalades for execs also.Tax policy, in my opinion, is a poor way to make many business decisions. I remember when every expert was telling everybody who was in business to but the most expensive SUV out there to get the Bush tax deal.

[BzaDem]

15. Grayson would be wrong EVEN IF the tax cut were extended permanently (though it isn't).

Grayson was implying that the tax cut was 150 billion, which exceeds normal corporate tax revenue. That is false regardless of how long we allow accelerated depreciation. If it is extended permanently in a hypothetical world, the value of the cut is only in interest (not the full value of the write-off).

Second, if they sell an asset that still has value, they have to pay back the depreciation. So turning over equipment faster doesn't necessarily help them that much.

[stopbush]

22. Thanks for your reasoned and factual explanations in this thread.

Too bad your "opponents" here don't seem to get it, no matter how simple and clear you make it.

[Stinky The Clown]

12. Yup. Stupid liberals say the damnedest things, huh?

[OhioBlue]

20. not all liberals say the same things all the time.

on this - Grayson is wrong. accelerated depreciation is smart stimulus.

[lamp_shade]

29. Grayson makes me nervous. He too often shoots from the hip with embarrassing results.