Revenues
Extend the Period for Depreciating the Cost of Certain Investments
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
| Billions of dollars | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2015-2019 | 2015-2024 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Revenues | 7 | 21 | 31 | 34 | 35 | 35 | 29 | 21 | 16 | 13 | 128 | 241 |
Source: Staff of the Joint Committee on Taxation.
Note: This option would take effect in January 2015. Estimates are relative to CBO’s April 2014 baseline projections.
When calculating their taxable income, companies can deduct the expenses they incurred when producing tangible goods or providing services for sale, including depreciation—the drop in the value of a productive asset over time. The tax code sets the number of years, or service life, over which the value of different types of investments can be deducted from taxable income. Equipment and structures are the two main types of tangible capital for which businesses take depreciation deductions, and the effective tax rates on the income generated by those types of capital are currently quite different. (Effective tax rates measure the impact of statutory tax rates and other features of the tax code in the form of a single tax rate that applies over the life of an investment.) The effective tax rates among equipment also differ depending on the lifespan of each piece of equipment.
This option would extend the lifetime of equipment and certain structures placed into service after December 31, 2014, for purposes of tax depreciation, with an aim toward equalizing the effective tax rates on income generated by different types of investment. Specifically, where the tax code currently stipulates a lifetime of 3, 5, 7, 10, 15, or 20 years for a given type of equipment, this option would increase those lifespans to 4, 7, 9, 13, 20, or 25 years, respectively.