Study Finds Repealing Accelerated Depreciation Would Ultimately Increase Budget Deficits
Chad Kolton

A copy of the study can be found here.

April 14, 2015

WASHINGTON, DC – Repealing accelerated depreciation would ultimately increase budget deficits, according to a new study by former economists from the Joint Committee on Taxation (JCT). The study, done by Quantria Strategies, found that financing a permanent tax reform package with front-loaded revenue from eliminating accelerated depreciation would create long-term budget deficits outside of the 10-year budget window.

“Eliminating accelerated depreciation to pay for tax reform would only temporarily balance the books,” said Kevin M. Dempsey, Senior Vice President for Public Policy at the American Iron and Steel Institute. “Slowing cost recovery would stifle new capital investments in the U.S. and could lead to tax increases down the road when Congress has to react to growing deficits.”

Because they rely on a 10-year budget window, official revenue estimates provided by the JCT do not provide the full story on how eliminating accelerated depreciation would impact federal receipts. The Quantria study found that changes in depreciation rules may accelerate or delay a deduction, but would not alter the total amount deducted. Therefore modifications to these rules may decrease deductions and raise revenues during the 10-year budget window, but will ultimately reduce federal revenues in the years beyond the budget window.  A copy of the study can be found here.

The study noted that any tax reform measure that relies on cuts in accelerated depreciation for revenue-neutrality during the 10-year budget window would ultimately increase budget deficits. These deficits could lead to the reversal of the tax reforms, including the restoration of higher tax rates. Thus capital intensive businesses may lose the benefits of accelerated depreciation and still wind up without the benefits of reduced tax rates or other tax reforms.

Quantria Strategies includes former economists at the JCT with more than 40 years of experience in analyzing policy and legislative proposals.

The CRANE Coalition is made up of American companies and associations focused on preserving accelerated depreciation to provide the capital needed to continue driving America’s economic growth and job creation here at home.