On behalf of National Taxpayers Union Foundation (“NTUF”), we write with comments on LB1023, proposed legislation to preserve businesses’ ability to fully expense qualified property. For nearly five decades, NTUF has striven to give policymakers the tools to make informed, pro-taxpayer policy choices.
Treatment of cost recovery for business investments often receive less attention than more high-profile topics, but full expensing is nevertheless one of the single most important policy changes to drive economic growth. Full expensing offers several unique advantages that combine to make it a key driver of pro-growth tax policy.
The first benefit of full expensing is simplicity. Depreciation schedules are often complicated and confusing to businesses, obligating businesses seeking to take advantage of cost recovery provisions to engage in a yearslong process of tax planning for each investment. Full expensing bypasses this process to provide straightforward tax relief to businesses.
Another related benefit of full expensing is that it enables businesses to maximize the benefit of the tax incentive. Businesses value tax relief now more than tax relief spread out over a period of time, as cash in hand can be put to productive uses in the meantime. This is particularly true in the case of investments that must be depreciated over long periods of time, as inflation gradually chips away at the value of the deduction received in later years — something that is not a concern under full expensing.
Depreciation schedules, when compared to full expensing, essentially function as mandated loans from businesses to the state treasury that are paid back in installments — a scheme that conflicts with the principle that taxpayers can put their resources to better use than the government.
The most important feature of full expensing, however, is how effectively it encourages productive investments. Unlike many other tax incentives, full expensing only provides a benefit to businesses when they make the investments that drive economic growth — and, as previously highlighted, in a more attractive manner to businesses than depreciation.
These investments drive productivity improvements and, consequently, wage growth. Wage increases occur when productivity improvements increase the value of workers to their employers — or, alternatively, their value to competitors poaching employees whose employers are unwilling to offer competitive wages. Full expensing effectively targets this crucial policy objective.
To top it all off, a final feature of full expensing is that most of the “cost” in terms of foregone revenue is merely a timing difference. Businesses receive the same total tax deduction value under full expensing as under depreciation — it is simply realized immediately rather than being spread out over the course of many years. Therefore, while full expensing appears to reduce revenue significantly compared to a depreciation regime over the short term, over a long enough budget window the difference becomes negligible.
Thank you for your consideration. Please feel free to contact me at andrew.wilford@ntu.org if you have any further questions.