CBO describes how it uses its capital tax model, called CapTax, to estimate the effects that changes in deductions to recover the cost of new investment have on the incentives to invest in capital.
Summary
CBO uses its capital tax model, called CapTax, to estimate the effects that federal taxes have on the incentives to invest in capital. The user cost of capital is the cost a potential new investor would incur when using one unit of capital. It depends on the cost-recovery allowances in place in a given year. Cost-recovery allowances measure how quickly the cost of a new investment can be deducted under current law. They account for tax provisions such as bonus depreciation—a policy that allows businesses to immediately deduct a portion of the cost of certain investments. CBO’s model accounts for differences in the user cost of capital based on the industry of the investing business, the type of asset being purchased, the legal form of the organization, and the source of financing.