Intro: Describe briefly Bonus Depreciation, Short-run solution, not long-run: Because of bonus depreciation, businesses will move up some of the investment in the current year then sit back in the next year and wait for the next round of the generous tax cuts. However, how does Congress know in which year to discourage investment? Moreover, bonus depreciation only lowers tax liability and boosts cash flow in the first year, but it increases payments in future years. Bonus depreciation is a beneficent tax cut, yet it still has some defects that need to be improved. Reason #1: More capital, less labor: Bonus depreciation allows businesses to take a large amount of tax deductions from the new equipment they buy. Since this benefits businesses, they will invest more money in equipment instead of hiring laborers-which in turn keeps unemployment rate at the very high level of 9.5%. Also, bonus depreciation costs the US government over $200 billion a year, this money could easily be put toward solutions
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This note was uploaded on 02/26/2012 for the course BA 253 taught by Professor Unknown during the Spring '12 term at Oregon.