[House Report 113-509]
[From the U.S. Government Publishing Office]
113th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 113-509
======================================================================
BONUS DEPRECIATION MODIFIED AND MADE PERMANENT
_______
July 3, 2014.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Camp, from the Committee on Ways and Means, submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 4718]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 4718) to amend the Internal Revenue Code of 1986 to
modify and make permanent bonus depreciation, having considered
the same, report favorably thereon with an amendment and
recommend that the bill as amended do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND...........................................5
A. Purpose and Summary................................. 5
B. Background and Need for Legislation................. 5
C. Legislative History................................. 6
II. EXPLANATION OF THE BILL..........................................6
A. Bonus Depreciation Modified and Made Permanent (sec.
168(k) of the Code)................................ 6
III. VOTES OF THE COMMITTEE..........................................13
IV. BUDGET EFFECTS OF THE BILL......................................14
A. Committee Estimate of Budgetary Effects............. 14
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 16
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 16
D. Macroeconomic Impact Analysis....................... 19
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......26
A. Committee Oversight Findings and Recommendations.... 26
B. Statement of General Performance Goals and
Objectives......................................... 26
C. Information Relating to Unfunded Mandates........... 26
D. Applicability of House Rule XXI 5(b)................ 27
E. Tax Complexity Analysis............................. 27
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 33
G. Duplication of Federal Programs..................... 33
H. Disclosure of Directed Rule Makings................. 33
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........33
VII. DISSENTING VIEWS................................................48
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. BONUS DEPRECIATION MODIFIED AND MADE PERMANENT.
(a) Made Permanent; Inclusion of Qualified Retail Improvement
Property.--Section 168(k)(2) of the Internal Revenue Code of 1986 is
amended to read as follows:
``(2) Qualified property.--For purposes of this subsection--
``(A) In general.--The term `qualified property'
means property--
``(i)(I) to which this section applies which
has a recovery period of 20 years or less,
``(II) which is computer software (as defined
in section 167(f)(1)(B)) for which a deduction
is allowable under section 167(a) without
regard to this subsection,
``(III) which is water utility property,
``(IV) which is qualified leasehold
improvement property, or
``(V) which is qualified retail improvement
property, and
``(ii) the original use of which commences
with the taxpayer.
``(B) Exception for alternative depreciation
property.--The term `qualified property' shall not
include any property to which the alternative
depreciation system under subsection (g) applies,
determined--
``(i) without regard to paragraph (7) of
subsection (g) (relating to election to have
system apply), and
``(ii) after application of section 280F(b)
(relating to listed property with limited
business use).
``(C) Special rules.--
``(i) Sale-leasebacks.--For purposes of
clause (ii) and subparagraph (A)(ii), if
property is--
``(I) originally placed in service by
a person, and
``(II) sold and leased back by such
person within 3 months after the date
such property was originally placed in
service,
such property shall be treated as originally
placed in service not earlier than the date on
which such property is used under the leaseback
referred to in subclause (II).
``(ii) Syndication.--For purposes of
subparagraph (A)(ii), if--
``(I) property is originally placed
in service by the lessor of such
property,
``(II) such property is sold by such
lessor or any subsequent purchaser
within 3 months after the date such
property was originally placed in
service (or, in the case of multiple
units of property subject to the same
lease, within 3 months after the date
the final unit is placed in service, so
long as the period between the time the
first unit is placed in service and the
time the last unit is placed in service
does not exceed 12 months), and
``(III) the user of such property
after the last sale during such 3-month
period remains the same as when such
property was originally placed in
service,
such property shall be treated as originally
placed in service not earlier than the date of
such last sale.
``(D) Coordination with section 280f.--For purposes
of section 280F--
``(i) Automobiles.--In the case of a
passenger automobile (as defined in section
280F(d)(5)) which is qualified property, the
Secretary shall increase the limitation under
section 280F(a)(1)(A)(i) by $8,000.
``(ii) Listed property.--The deduction
allowable under paragraph (1) shall be taken
into account in computing any recapture amount
under section 280F(b)(2).
``(iii) Inflation adjustment.-- In the case
of any taxable year beginning in a calendar
year after 2014, the $8,000 amount in clause
(i) shall be increased by an amount equal to--
``(I) such dollar amount, multiplied
by
``(II) the automobile price inflation
adjustment determined under section
280F(d)(7)(B)(i) for the calendar year
in which such taxable year begins by
substituting `2013' for `1987' in
subclause (II) thereof.
If any increase under the preceding sentence
is not a multiple of $100, such increase shall
be rounded to the nearest multiple of $100.
``(E) Deduction allowed in computing minimum tax.--
For purposes of determining alternative minimum taxable
income under section 55, the deduction under section
167 for qualified property shall be determined without
regard to any adjustment under section 56.''.
(b) Expansion of Election to Accelerate Amt Credits in Lieu of Bonus
Depreciation.--Section 168(k)(4) of such Code is amended to read as
follows:
``(4) Election to accelerate amt credits in lieu of bonus
depreciation.--
``(A) In general.--If a corporation elects to have
this paragraph apply for any taxable year--
``(i) paragraphs (1)(A), (2)(D)(i), and
(5)(A)(i) shall not apply for such taxable
year,
``(ii) the applicable depreciation method
used under this section with respect to any
qualified property shall be the straight line
method, and
``(iii) the limitation imposed by section
53(c) for such taxable year shall be increased
by the bonus depreciation amount which is
determined for such taxable year under
subparagraph (B).
``(B) Bonus depreciation amount.--For purposes of
this paragraph--
``(i) In general.--The bonus depreciation
amount for any taxable year is an amount equal
to 20 percent of the excess (if any) of--
``(I) the aggregate amount of
depreciation which would be allowed
under this section for qualified
property placed in service by the
taxpayer during such taxable year if
paragraph (1) applied to all such
property, over
``(II) the aggregate amount of
depreciation which would be allowed
under this section for qualified
property placed in service by the
taxpayer during such taxable year if
paragraph (1) did not apply to any such
property.
The aggregate amounts determined under
subclauses (I) and (II) shall be determined
without regard to any election made under
subsection (b)(2)(D), (b)(3)(D), or (g)(7) and
without regard to subparagraph (A)(ii).
``(ii) Limitation.--The bonus depreciation
amount for any taxable year shall not exceed
the lesser of--
``(I) 50 percent of the minimum tax
credit under section 53(b) for the
first taxable year ending after
December 31, 2013, or
``(II) the minimum tax credit under
section 53(b) for such taxable year
determined by taking into account only
the adjusted net minimum tax for
taxable years ending before January 1,
2014 (determined by treating credits as
allowed on a first-in, first-out
basis).
``(iii) Aggregation rule.--All corporations
which are treated as a single employer under
section 52(a) shall be treated--
``(I) as 1 taxpayer for purposes of
this paragraph, and
``(II) as having elected the
application of this paragraph if any
such corporation so elects.
``(C) Credit refundable.--For purposes of section
6401(b), the aggregate increase in the credits
allowable under part IV of subchapter A for any taxable
year resulting from the application of this paragraph
shall be treated as allowed under subpart C of such
part (and not any other subpart).
``(D) Other rules.--
``(i) Election.--Any election under this
paragraph may be revoked only with the consent
of the Secretary.
``(ii) Partnerships with electing partners.--
In the case of a corporation which is a partner
in a partnership and which makes an election
under subparagraph (A) for the taxable year,
for purposes of determining such corporation's
distributive share of partnership items under
section 702 for such taxable year--
``(I) paragraphs (1)(A), (2)(D)(i),
and (5)(A)(i) shall not apply, and
``(II) the applicable depreciation
method used under this section with
respect to any qualified property shall
be the straight line method.
``(iii) Certain partnerships.--In the case of
a partnership in which more than 50 percent of
the capital and profits interests are owned
(directly or indirectly) at all times during
the taxable year by 1 corporation (or by
corporations treated as 1 taxpayer under
subparagraph (B)(iii)), each partner shall
compute its bonus depreciation amount under
clause (i) of subparagraph (B) by taking into
account its distributive share of the amounts
determined by the partnership under subclauses
(I) and (II) of such clause for the taxable
year of the partnership ending with or within
the taxable year of the partner.''.
(c) Special Rules for Trees and Vines Bearing Fruits and Nuts.--
Section 168(k) of such Code is amended--
(1) by striking paragraph (5), and
(2) by inserting after paragraph (4) the following new
paragraph:
``(5) Special rules for trees and vines bearing fruits and
nuts.--
``(A) In general.--In the case of any tree or vine
bearing fruits or nuts which is planted, or is grafted
to a plant that has already been planted, by the
taxpayer in the ordinary course of the taxpayer's
farming business (as defined in section 263A(e)(4))--
``(i) a depreciation deduction equal to 50
percent of the adjusted basis of such tree or
vine shall be allowed under section 167(a) for
the taxable year in which such tree or vine is
so planted or grafted, and
``(ii) the adjusted basis of such tree or
vine shall be reduced by the amount of such
deduction.
``(B) Election out.--If a taxpayer makes an election
under this subparagraph for any taxable year, this
paragraph shall not apply to any tree or vine planted
or grafted during such taxable year. An election under
this subparagraph may be revoked only with the consent
of the Secretary.
``(C) Additional depreciation may be claimed only
once.--If this paragraph applies to any tree or vine,
such tree or vine shall not be treated as qualified
property in the taxable year in which placed in
service.
``(D) Coordination with election to accelerate amt
credits.--If a corporation makes an election under
paragraph (4) for any taxable year, the amount under
paragraph (4)(B)(i)(I) for such taxable year shall be
increased by the amount determined under subparagraph
(A)(i) for such taxable year.
``(E) Deduction allowed in computing minimum tax.--
Rules similar to the rules of paragraph (2)(E) shall
apply for purposes of this paragraph.''.
(d) Conforming Amendments.--
(1) Section 168(e)(8) of such Code is amended by striking
subparagraph (D).
(2) Section 168(k) of such Code is amended by adding at the
end the following new paragraph:
``(6) Election out.--If a taxpayer makes an election under
this paragraph with respect to any class of property for any
taxable year, this subsection shall not apply to all property
in such class placed in service (or, in the case of paragraph
(5), planted or grafted) during such taxable year. An election
under this paragraph may be revoked only with the consent of
the Secretary.''.
(3) Section 168(l)(5) of such Code is amended by striking
``section 168(k)(2)(G)'' and inserting ``section
168(k)(2)(E)''.
(4) Section 263A(c) of such Code is amended by adding at the
end the following new paragraph:
``(7) Coordination with section 168(k)(5).--This section
shall not apply to any amount allowable as a deduction by
reason of section 168(k)(5) (relating to special rules for
trees and vines bearing fruits and nuts).''.
(5) Section 460(c)(6)(B) of such Code is amended by striking
``which--'' and all that follows and inserting ``which has a
recovery period of 7 years or less.''.
(6) Section 168(k) of such Code is amended by striking
``Acquired After December 31, 2007, and Before January 1,
2014'' in the heading thereof.
(e) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
property placed in service after December 31, 2013.
(2) Expansion of election to accelerate amt credits in lieu
of bonus depreciation.--
(A) In general.--The amendment made by subsection (b)
(other than so much of such amendment as relates to
section 168(k)(4)(D)(iii) of such Code, as added by
such amendment) shall apply to taxable years ending
after December 31, 2013.
(B) Transitional rule.--In the case of a taxable year
beginning before January 1, 2014, and ending after
December 31, 2013, the bonus depreciation amount
determined under section 168(k)(4) of such Code for
such year shall be the sum of--
(i) such amount determined without regard to
the amendments made by this section and--
(I) by taking into account only
property placed in service before
January 1, 2014, and
(II) by multiplying the limitation
under section 168(k)(4)(C)(ii) of such
Code (determined without regard to the
amendments made by this section) by a
fraction the numerator of which is the
number of days in the taxable year
before January 1, 2014, and the
denominator of which is the number of
days in the taxable year, and
(ii) such amount determined after taking into
account the amendments made by this section
and--
(I) by taking into account only
property placed in service after
December 31, 2013, and
(II) by multiplying the limitation
under section 168(k)(4)(B)(ii) of such
Code (as amended by this section) by a
fraction the numerator of which is the
number of days in the taxable year
after December 31, 2013, and the
denominator of which is the number of
days in the taxable year.
(3) Special rules for certain trees and vines.--The amendment
made by subsection (c)(2) shall apply to trees and vines
planted or grafted after December 31, 2013.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
H.R. 4718, reported by the Committee on Ways and Means,
provides that businesses may claim an additional first-year
depreciation deduction (``bonus depreciation'') equal to 50
percent of the cost of qualified property placed in service
after December 31, 2013. A similar, temporary provision expired
for property placed in service before January 1, 2014. H.R.
4718 expands the scope of qualifying property eligible for
bonus depreciation to include qualified retail improvement
property, and permits a tree or vine bearing fruit or nuts to
be eligible for bonus depreciation when planted or grafted,
rather than when placed in service. H.R. 4718 adjusts for
inflation the bonus depreciation deduction for passenger
automobiles subject to section 280F.
Similar to a temporary provision that expired for taxable
years beginning after December 31, 2013, H.R. 4718 permits
taxpayers to claim a portion of unused alternative minimum tax
(``AMT'') credits in lieu of bonus depreciation. Compared with
the expired provision, H.R. 4718 increases the maximum credit
taxpayers may claim to the lesser of (1) 50 percent of the
taxpayer's AMT credit in 2014, or (2) the taxpayer's AMT
credits for taxable years ending before 2014 (with the oldest
credits taken into account first).
B. Background and Need for Legislation
While the Committee continues actively to pursue
comprehensive tax reform as a critical means of promoting
economic growth and job creation, the Committee also believes
that it is important to provide businesses permanent, immediate
tax relief to encourage faster economic growth and job
creation. By restoring and making permanent the 50-percent
bonus depreciation deduction, H.R. 4718 would continue an
important incentive for businesses and farms that have
struggled through the economic challenges of the past six years
to invest in critical business assets. Permanent 50-percent
bonus depreciation would provide essential certainty for
American businesses, allowing them to plan for future
investments and lowering the cost of capital. By expanding
bonus depreciation to retail improvement property, H.R. 4718
would encourage investment in retail businesses that have
survived the sluggish economic recovery. H.R. 4718 would also
ensure that businesses' ability to acquire critical business
vehicles will keep pace with the cost of such investments in
future years by indexing the bonus-depreciation limits for
certain passenger automobiles. Finally, by increasing the
ability of businesses to access trapped AMT credits, H.R. 4718
would provide vital cash for investments in business operations
and growth, as well as much-needed job creation and increased
wages.
C. Legislative History
Background
H.R. 4718 was introduced on May 22, 2014, and was referred
to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 4718, a bill
to modify and make permanent bonus depreciation, on May 29,
2014, and ordered the bill, as amended, favorably reported
(with a quorum being present).
Committee hearings
The need for permanent rules regarding bonus depreciation
was discussed at no fewer than seven hearings during the 112th
and 113th Congresses:
Full Committee Hearing on How Business Tax
Reform Can Encourage Job Creation (June 2, 2011);
Full Committee Hearing on the Interaction of
Tax and Financial Accounting on Tax Reform (February 8,
2012);
Full Committee Hearing on the President's
Fiscal Year 2013 Budget Proposal with U.S. Department
of the Treasury Secretary Timothy F. Geithner (February
15, 2012);
Select Revenue Measures Subcommittee Hearing
on Certain Expiring Tax Provisions (April 26, 2012);
Full Committee Hearing on Tax Reform and the
U.S. Manufacturing Sector (July 19, 2012);
Full Committee Hearing on Tax Reform and
Residential Real Estate (April 25, 2013); and
Full Committee Hearing on the Benefits of
Permanent Tax Policy for America's Job Creators (April
8, 2014).
II. EXPLANATION OF THE BILL
A. Bonus Depreciation Modified and Made Permanent (sec. 168(k) of the
Code)
PRESENT LAW
In general
An additional first-year depreciation deduction is allowed
equal to 50 percent of the adjusted basis of qualified property
acquired and placed in service after December 31, 2007 and
before January 1, 2014 (January 1, 2015 for certain longer-
lived and transportation property).\1\
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\1\ Sec. 168(k). The additional first-year depreciation deduction
is subject to the general rules regarding whether an item must be
capitalized under section 263A. An additional first-year depreciation
deduction is allowed equal to 100 percent of the adjusted basis of
qualified original-use property if it meets the requirements for the
additional first-year depreciation and the taxpayer acquired and placed
the property in service after September 8, 2010 and before January 1,
2012 (January 1, 2013 for certain longer-lived and transportation
property). Sec. 168(k)(5). See also Rev. Proc. 2011-26, 2011-16 I.R.B.
664, 2011.
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The additional first-year depreciation deduction is allowed
for both the regular tax and the alternative minimum tax
(``AMT''),\2\ but is not allowed in computing earnings and
profits.\3\ The basis of the property and the depreciation
allowances in the year of purchase and later years are
appropriately adjusted to reflect the additional first-year
depreciation deduction.\4\ The amount of the additional first-
year depreciation deduction is not affected by a short taxable
year.\5\ The taxpayer may elect out of additional first-year
depreciation for any class of property for any taxable year.\6\
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\2\ Sec. 168(k)(2)(G). See also Treas. Reg. sec. 1.168(k)-1(d).
\3\Treas. Reg. sec. 1.168(k)-1(f)(7).
\4\Sec. 168(k)(1)(B).
\5\Ibid.
\6\Sec. 168(k)(2)(D)(iii). For the definition of a class of
property, see Treas. Reg. sec. 1.168(k)-1(e)(2).
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The interaction of the additional first-year depreciation
allowance with the otherwise applicable depreciation allowance
may be illustrated as follows. Assume that in 2013, a taxpayer
purchased new depreciable property and placed it in service.\7\
The property's cost is $1,000, and it is five-year property
subject to the 200 percent declining balance method and half-
year convention. The amount of additional first-year
depreciation allowed is $500. The remaining $500 of the cost of
the property is depreciable under the rules applicable to five-
year property. Thus $100\8\ also is allowed as a depreciation
deduction in 2013. The total depreciation deduction with
respect to the property for 2013 is $600. The remaining $400
adjusted basis of the property generally is recovered through
otherwise applicable depreciation rules.
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\7\Assume that the cost of the property is not eligible for
expensing under section 179.
\8\$100 results from the application of the half-year convention
and the 200 percent declining balance method to the remaining $500.
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Property qualifying for the additional first-year
depreciation deduction must meet all of the following
requirements. First, the property must be (1) property to which
the modified accelerated cost recovery system (``MACRS'')
applies with an applicable recovery period of 20 years or less;
(2) water utility property (as defined in section 168(e)(5));
(3) computer software other than computer software covered by
section 197; or (4) qualified leasehold improvement property
(as defined in section 168(k)(3)).\9\ Second, the original
use\10\ of the property must commence with the taxpayer after
December 31, 2007.\11\ Third, the taxpayer must acquire the
property within the applicable time period (as described
below). Finally, the property must be placed in service before
January 1, 2014. An extension of the placed-in-service date of
one year (i.e., before January 1, 2015) is provided for certain
property with a recovery period of 10 years or longer and
certain transportation property.\12\
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\9\The additional first-year depreciation deduction is not
available for any property that is required to be depreciated under the
alternative depreciation system of MACRS. Sec. 168(k)(2)(D)(i). The
additional first-year depreciation deduction also is not available for
qualified New York Liberty Zone leasehold improvement property as
defined in section 1400L(c)(2). Sec. 168(k)(2)(D)(ii).
\10\The term ``original use'' means the first use to which the
property is put, whether or not such use corresponds to the use of such
property by the taxpayer. If in the normal course of its business a
taxpayer sells fractional interests in property to unrelated third
parties, then the original use of such property begins with the first
user of each fractional interest (i.e., each fractional owner is
considered the original user of its proportionate share of the
property). Treas. Reg. sec. 1.168(k)-1(b)(3).
\11\A special rule applies in the case of certain leased property.
In the case of any property that is originally placed in service by a
person and that is sold to the taxpayer and leased back to such person
by the taxpayer within three months after the date that the property
was placed in service, the property would be treated as originally
placed in service by the taxpayer not earlier than the date that the
property is used under the leaseback. If property is originally placed
in service by a lessor, such property is sold within three months after
the date that the property was placed in service, and the user of such
property does not change, then the property is treated as originally
placed in service by the taxpayer not earlier than the date of such
sale. Sec. 168(k)(2)(E)(ii).
\12\Property qualifying for the extended placed-in-service date
must have an estimated production period exceeding one year and a cost
exceeding $1 million. Transportation property generally is defined as
tangible personal property used in the trade or business of
transporting persons or property. Certain aircraft which is not
transportation property, other than for agricultural or firefighting
uses, also qualifies for the extended placed-in-service-date, if at the
time of the contract for purchase, the purchaser made a nonrefundable
deposit of the lesser of 10 percent of the cost or $100,000, and which
has an estimated production period exceeding four months and a cost
exceeding $200,000.
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To qualify, property must be acquired (1) after December
31, 2007, and before January 1, 2014, but only if no binding
written contract for the acquisition is in effect before
January 1, 2008, or (2) pursuant to a binding written contract
which was entered into after December 31, 2007, and before
January 1, 2014.\13\ With respect to property that is
manufactured, constructed, or produced by the taxpayer for use
by the taxpayer, the taxpayer must begin the manufacture,
construction, or production of the property after December 31,
2007, and before January 1, 2014.\14\ Property that is
manufactured, constructed, or produced for the taxpayer by
another person under a contract that is entered into prior to
the manufacture, construction, or production of the property is
considered to be manufactured, constructed, or produced by the
taxpayer.\15\ For property eligible for the extended placed-in-
service date, a special rule limits the amount of costs
eligible for the additional first-year depreciation. With
respect to such property, only the portion of the basis that is
properly attributable to the costs incurred before January 1,
2014 (``progress expenditures'') is eligible for the additional
first-year depreciation deduction.\16\
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\13\In the case of a binding written contract to acquire one or
more components of a larger self-constructed asset, the larger self-
constructed asset will not fail to qualify for the additional first-
year depreciation merely because a binding written contract to acquire
one or more components of such property was in effect prior to January
1, 2008. See Treas. Reg. sec. 1.168(k)-1(b)(4)(iii)(C). See also,
Treas. Reg. sec. 1.168(k)-1(b)(4)(v), Examples 6 and 7.
\14\Sec. 168(k)(2)(E)(i).
\15\Treas. Reg. sec. 1.168(k)-1(b)(4)(iii).
\16\Sec. 168(k)(2)(B)(ii). For purposes of determining the amount
of eligible progress expenditures, rules similar to section 46(d)(3) as
in effect prior to the Tax Reform Act of 1986 apply.
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Property does not qualify for the additional first-year
depreciation deduction when the user of such property (or a
related party) would not have been eligible for the additional
first-year depreciation deduction if the user (or a related
party) were treated as the owner.\17\ For example, if a
taxpayer sells to a related party property that was under
construction prior to January 1, 2008, the property does not
qualify for the additional first-year depreciation deduction.
Similarly, if a taxpayer sells to a related party property that
was subject to a binding written contract prior to January 1,
2008, the property does not qualify for the additional first-
year depreciation deduction. As a further example, if a
taxpayer (the lessee) sells property in a sale-leaseback
arrangement, and the property otherwise would not have
qualified for the additional first-year depreciation deduction
if it were owned by the taxpayer-lessee, then the lessor is not
entitled to the additional first-year depreciation deduction.
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\17\Sec. 168(k)(2)(E)(iv).
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The limitation under section 280F on the amount of
depreciation deductions allowed with respect to certain
passenger automobiles is increased in the first year by $8,000
for automobiles that qualify (and for which the taxpayer does
not elect out of the additional first-year deduction).\18\ The
$8,000 amount is not indexed for inflation.
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\18\Sec. 168(k)(2)(F).
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Special rule for long-term contracts
In general, in the case of a long-term contract, the
taxable income from the contract is determined under the
percentage-of-completion method.\19\ Solely for purposes of
determining the percentage of completion under section
460(b)(1)(A), the cost of qualified property with a MACRS
recovery period of seven years or less is taken into account as
a cost allocated to the contract as if bonus depreciation had
not been enacted for property placed in service (1) after
December 31, 2009 and before January 1, 2011 (January 1, 2012
in the case of certain longer-lived and transportation
property) or (2) after December 31, 2012 and before January 1,
2014 (January 1, 2015 in the case of certain longer-lived and
transportation property).\20\ Bonus depreciation generally is
taken into account in determining taxable income under the
percentage-of-completion method for property placed in service
after December 31, 2010 and before January 1, 2013.
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\19\See sec. 460.
\20\Sec. 460(c)(6).
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Election to accelerate AMT credits in lieu of bonus depreciation
A corporation otherwise eligible for additional first-year
depreciation may elect to claim additional AMT credits in lieu
of claiming additional depreciation with respect to ``eligible
qualified property.''\21\ In the case of a corporation making
this election, the straight line method is used for the regular
tax and the AMT with respect to eligible qualified
property.\22\
---------------------------------------------------------------------------
\21\Sec. 168(k)(4). Eligible qualified property means qualified
property eligible for bonus depreciation with minor effective date
differences having little (if any) remaining significance.
\22\Sec. 168(k)(4)(A).
---------------------------------------------------------------------------
Generally, an election under this provision for a taxable
year applies to subsequent taxable years. However, each time
the provision has been extended, a corporation which has
previously made an election has been allowed to elect not to
claim additional minimum tax credits, or, if no election had
previously been made, to make an election to claim additional
credits with respect to property subject to the extension.\23\
---------------------------------------------------------------------------
\23\Secs. 168(k)(4)(H), (I), and (J).
---------------------------------------------------------------------------
A corporation making an election increases the tax
liability limitation under section 53(c) on the use of minimum
tax credits by the bonus depreciation amount.\24\ The aggregate
increase in credits allowable by reason of the increased
limitation is treated as refundable.\25\
---------------------------------------------------------------------------
\24\Sec. 168(k)(4)(B)(ii).
\25\Sec. 168(k)(4)(F).
---------------------------------------------------------------------------
The bonus depreciation amount generally is equal to 20
percent of bonus depreciation\26\ for eligible qualified
property that could be claimed as a deduction absent an
election under this provision. As originally enacted, the bonus
depreciation amount for all taxable years was limited to the
lesser of (1) $30 million, or (2) six percent of the minimum
tax credits allocable to the adjusted net minimum tax imposed
for taxable years beginning before January 1, 2006.\27\
However, extensions of this provision have provided that this
limitation applies separately to property subject to each
extension.
---------------------------------------------------------------------------
\26\For this purpose, bonus depreciation is the difference between
(i) the aggregate amount of depreciation determined if section
168(k)(1) applied to all eligible qualified property placed in service
during the taxable year and (ii) the amount of depreciation that would
be so determined if section 168(k)(1) did not so apply. This
determination is made using the most accelerated depreciation method
and the shortest life otherwise allowable for each property. Sec.
168(k)(4)(C).
\27\Sec. 168(k)(4)(C)(iii).
---------------------------------------------------------------------------
All corporations treated as a single employer under section
52(a) are treated as one taxpayer for purposes of the
limitation, as well as for electing the application of this
provision.\28\
---------------------------------------------------------------------------
\28\Sec. 168(k)(4)(C)(iv).
---------------------------------------------------------------------------
In the case of a corporation making an election which is a
partner in a partnership, for purposes of determining the
electing partner's distributive share of partnership items,
bonus depreciation does not apply to any eligible qualified
property and the straight line method is used with respect to
that property.\29\
---------------------------------------------------------------------------
\29\Sec. 168(k)(4)(G)(ii).
---------------------------------------------------------------------------
Qualified retail improvement property
Qualified retail improvement property placed in service
after December 31, 2008, and before January 1, 2014 is
depreciated over 15 years using the straight line method and a
half-year convention.\30\ Qualified retail improvement property
placed in service on or after January 1, 2014 generally is
depreciated using the straight line method over a 39-year
recovery period, beginning in the month the addition or
improvement was placed in service.\31\ Qualified retail
improvement property is defined as any improvement to an
interior portion of a building that is nonresidential real
property if such portion is open to the general public\32\ and
is used in the retail trade or business of selling tangible
personal property to the general public, and such improvement
is placed in service more than three years after the date the
building was first placed in service.\33\ Qualified retail
improvement property does not include any improvement for which
the expenditure is attributable to the enlargement of the
building, any elevator or escalator, any structural component
benefitting a common area, or the internal structural framework
of the building.\34\ In the case of an improvement made by the
owner of such improvement, the improvement is a qualified
retail improvement only so long as the improvement is held by
such owner.\35\ Additionally, qualified retail improvement
property is not eligible for bonus depreciation, unless it also
meets the definition of qualified leasehold improvement
property.\36\
---------------------------------------------------------------------------
\30\Secs. 168(e)(3)(E)(ix) and (e)(8).
\31\See secs. 168(b)(3), (c), and (d)(2).
\32\Improvements to portions of a building not open to the general
public (e.g., stock room in back of retail space) do not qualify under
the provision.
\33\Sec. 168(e)(8)(A).
\34\ Sec. 168(e)(8)(C).
\35\Sec. 168(e)(8)(B).
\36\See sec. 168(e)(8)(D) and Rev. Proc. 2011-26.
---------------------------------------------------------------------------
Preproductive period costs of orchards, groves, and vineyards
An orchard, vineyard or grove generally produces annual
crops of fruits (e.g., apples, avocadoes, or grapes) or nuts
(e.g., pecans, pistachios, or walnuts). During the development
period of the trees or vines, a farmer generally incurs costs
to cultivate, spray, fertilize and irrigate the tree or vine to
its crop-producing stage (i.e., preproductive period
costs).\37\ Preproductive period costs may be deducted or
capitalized, depending on the preproductive period of the tree
or vine,\38\ as well as whether the farmer elects to have
section 263A not apply.\39\ After the trees or vines start
producing fruit or nuts, a farmer may depreciate the
capitalized costs of the trees or vines (i.e., the acquisition
costs of the seeds, seedlings, or plants and their original
planting which were capitalized when incurred, as well as the
preproductive period costs if section 263A applied).\40\ A ten-
year recovery period is assigned to any tree or vine bearing
fruits or nuts.\41\
---------------------------------------------------------------------------
\37\See section 263A(e)(3), which defines the ``preproductive
period'' of a plant which will have more than one crop or yield as the
period before the first marketable crop or yield from such plant.
\38\See section 263A(d)(1)(A)(ii). Section 263A generally requires
certain direct and indirect costs allocable to real or tangible
personal property produced by the taxpayer to be included in either
inventory or capitalized into the basis of such property, as
applicable.
\39\See section 263A(d)(3).
\40\In the case of any tree or vine bearing fruits or nuts, the
placed in service date does not occur until the tree or vine first
reaches an income-producing stage. Treas. Reg. sec. 1.46-3(d)(2). See
also, Rev. Rul. 80-25, 1980-1 C.B. 65, 1980; and Rev. Rul. 69-249,
1969-1 C.B. 31, 1969.
\41\Sec. 168(e)(3)(D)(ii).
---------------------------------------------------------------------------
REASONS FOR CHANGE
Bonus depreciation
The Committee believes that modifying and making the
additional first-year depreciation deduction permanent provides
businesses with the certainty needed to increase purchases of
equipment and other assets, and promote capital investment,
modernization, and growth.
Retailers frequently remodel or renovate the interiors of
their stores. The Committee believes that retailers should not
be treated differently based on whether the building in which
they operate is owned or leased. As many retailers own the
building in which they operate their business, the Committee
believes that expanding the definition of qualified property to
specifically include qualified retail improvement property
provides clarity and relief to many retailers.
In addition, in order to counteract the negative impact of
inflation on the $8,000 increase amount in the section 280F
limitation on the first year depreciation deduction allowed
with respect to certain passenger automobiles for which bonus
depreciation is claimed, the Committee believes it is
appropriate to index such amount for automobile price
inflation.
Expansion of election to accelerate AMT credits in lieu of bonus
depreciation
The Committee believes that expanding the election to
accelerate AMT credits in lieu of bonus depreciation enables
corporations that would otherwise derive no benefit from bonus
depreciation to better access capital in order to expand and
invest in new facilities and equipment.
Special rules for trees and vines bearing fruits and nuts
The Committee believes that allowing growers of trees or
vines that bear fruit or nuts to elect to claim bonus
depreciation in the year of planting or grafting, rather than
having to wait until the year in which the tree or vine
produces a commercially viable or harvestable crop of fruits or
nuts, encourages farmers to invest in their long-term crop
businesses.
EXPLANATION OF PROVISION
Bonus depreciation
The provision makes permanent the 50-percent additional
first-year depreciation deduction for qualified property.\42\
---------------------------------------------------------------------------
\42\Due to the passage of time since the provision's original
enactment, the provision eliminates the various acquisition date
requirements as no longer relevant. The provision also repeals as
deadwood the provision relating to property acquired during certain
pre-2012 periods (or certain pre-2013 periods for certain longer-lived
and transportation property).
---------------------------------------------------------------------------
The provision expands the definition of qualified property
to include qualified retail improvement property.
The $8,000 increase amount in the limitation on the
depreciation deductions allowed with respect to certain
passenger automobiles is indexed for automobile price
inflation. The increase does not apply to a taxpayer who elects
to accelerate AMT credits for a taxable year.
The provision also makes permanent the special rule for the
allocation of bonus depreciation to a long-term contract, which
provides that solely for purposes of determining the percentage
of completion under section 460(b)(1)(A), the cost of qualified
property with a MACRS recovery period of seven years or less is
taken into account as a cost allocated to the contract as if
bonus depreciation had not been enacted.
Expansion of election to accelerate AMT credits in lieu of bonus
depreciation
The provision makes permanent and modifies the election to
increase the AMT credit limitation in lieu of bonus
depreciation. Under the provision, the bonus depreciation
amount for a taxable year (as defined under present law with
respect to all qualified property) is limited to the lesser of
(1) 50 percent of the minimum tax credit for the first taxable
year ending after December 31, 2013 (determined before the
application of any tax liability limitation), or (2) the
minimum tax credit for the taxable year allocable to the
adjusted net minimum tax imposed for taxable years ending
before January 1, 2014 (determined before the application of
any tax liability limitation and determined on a first-in,
first-out basis).
The provision also provides that in the case of a
partnership having a single corporate partner owning (directly
or indirectly) more than 50-percent capital and profits
interests in the partnership, each partner takes into account
its distributive share of partnership depreciation in
determining its bonus depreciation amount.
Special rules for trees and vines bearing fruits and nuts
In addition, the provision allows a taxpayer to claim bonus
depreciation on trees or vines bearing fruits or nuts, in the
taxable year in which the tree or vine is planted, or grafted
to a plant that has already been planted, by the taxpayer in
the ordinary course of the taxpayer's farming business
(notwithstanding that the tree or vine has not yet been placed
in service in that year). The adjusted basis of the tree or
vine is reduced by the amount of the deduction under this
provision. Further, any amount deducted under this provision is
not subject to capitalization under section 263A. A taxpayer
may elect to have this provision not apply to trees or vines
planted or grafted in that taxable year. If a taxpayer does not
elect out of this provision, the tree or vine will not be
eligible for bonus depreciation in the subsequent taxable year
in which it is placed in service.
EFFECTIVE DATE
The provision relating to additional first-year
depreciation is effective for property placed in service after
December 31, 2013.
The provision relating to the election to accelerate AMT
credits in lieu of claiming bonus depreciation generally
applies to taxable years ending after December 31, 2013.\43\
For a taxable year beginning before January 1, 2014, and ending
after December 31, 2013, a transitional rule applies for
purposes of determining the amount eligible for the election to
claim additional AMT credits. The transitional rule applies the
present-law limitations to property placed in service in 2013
and the revised limitations to property placed in service in
2014.
---------------------------------------------------------------------------
\43\The partnership rule added by the provision applies to property
placed in service after December 31, 2013.
---------------------------------------------------------------------------
The provision relating to trees and vines is effective for
property planted or grafted after December 31, 2013.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 4718, a bill to modify and make permanent
bonus depreciation, on May 29, 2014.
The bill, H.R. 4718, was ordered favorably reported as
amended by a roll call vote of 23 yeas to 11 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp....................... ........ ......... Mr. Levin........ ........ .........
Mr. Johnson.................... ........ ......... Mr. Rangel....... ........ ........ .........
Mr. Brady...................... ........ ......... Mr. McDermott.... ........ .........
Mr. Ryan....................... ........ ......... Mr. Lewis........ ........ ........ .........
Mr. Nunes...................... ........ ......... Mr. Neal......... ........ ........ .........
Mr. Tiberi..................... ........ ......... Mr. Becerra...... ........ .........
Mr. Reichert................... ........ ......... Mr. Doggett...... ........ .........
Mr. Boustany................... ........ ......... Mr. Thompson..... ........ .........
Mr. Roskam..................... ........ ......... Mr. Larson....... ........ .........
Mr. Gerlach.................... ........ ......... Mr. Blumenauer... ........ .........
Mr. Price...................... ........ ......... Mr. Kind......... ........ .........
Mr. Buchanan................... ........ ......... Mr. Pascrell..... ........ ........ .........
Mr. Smith...................... ........ ......... Mr. Crowley...... ........ ........ .........
Mr. Schock..................... ........ ......... Ms. Schwartz..... ........ .........
Ms. Jenkins.................... ........ ......... Mr. Davis........ ........ .........
Mr. Paulsen.................... ........ ......... Ms. Sanchez...... ........ .........
Mr. Marchant................... ........ .........
Ms. Black...................... ........ .........
Mr. Reed....................... ........ .........
Mr. Young...................... ........ .........
Mr. Kelly...................... ........ .........
Mr. Griffin.................... ........ .........
Mr. Renacci.................... ........ .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 4718, as
reported.
FISCAL YEARS
[Millions of Dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014-19 2014-24
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Bonus depreciation including special rules for -8,738 -79,252 -42,071 -35,002 -26,371 -17,359 -12,028 -10,061 -10,019 -10,701 -11,309 -208,792 -262,911
trees and vines bearing fruits and nuts........
Expansion of election to accelerate AMT credits -2,456 -4,101 -4,486 -4,829 -5,198 -2,893 -551 3 3 3 4 -23,964 -24,502
in lieu of bonus depreciation..................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing tax
provisions involve increased tax expenditures. (See amounts in
table in Part IV.A., above.)
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 5, 2014.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4718, a bill to
amend the Internal Revenue Code of 1986 to modify and make
permanent bonus depreciation.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Logan
Timmerhoff.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 4718--A bill to amend the Internal Revenue Code of 1986 to modify
and make permanent bonus depreciation
H.R. 4718 would amend the Internal Revenue Code to
permanently provide an additional first-year depreciation
deduction of 50 percent of the adjusted basis of qualified
property, effective January 1, 2014. Under current law that
additional deduction expired after December 31, 2013. H.R. 4718
would also expand the definition of qualified property to
include certain retail improvement property and certain trees
and vines bearing nuts or fruits. It would also expand and make
permanent recently expired provisions that allowed corporations
to claim additional credits against the alternative minimum tax
instead of claiming the additional first-year depreciation
deduction.
The staff of the Joint Committee on Taxation (JCT)
estimates that enacting H.R. 4718 would reduce revenues, thus
increasing federal budget deficits, by about $287 billion over
the 2014-2024 period.
The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting
direct spending and revenues. Enacting H.R. 4718 would result
in revenue losses in each year beginning in 2014. The estimated
increases in the deficit are shown in the following table.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Logan
Timmerhoff. The estimate was approved by David Weiner,
Assistant Director for Tax Analysis.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 4718, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON MAY 29, 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------------------------------------------------------------------------
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014-2019 2014-2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE DEFICIT
Statutory Pay-As-You-Go Effects 11,194 83,353 46,557 39,831 31,569 20,252 12,579 10,058 10,016 10,698 11,305 232,756 287,413
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to totals because of rounding.
sD. Macroeconomic Impact Analysis
In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the staff of the Joint
Committee on Taxation provides the following analysis of H.R.
4718, as ordered reported by the Committee on Ways and Means on
May 29, 2014.
Overview
The following discussion analyzes the macroeconomic effects
of this bill relative to the 2014 economic and receipts
baseline published by the Congressional Budget Office (``CBO'')
in February, 2014.\44\ We analyzed the bill using the Joint
Committee staff macroeconomic equilibrium growth model
(``MEG''), and an overlapping generations model (``OLG'').\45\
The proposal increases the expected after-tax return on
investment in targeted depreciable property by allowing firms
to deduct a larger share of their capital expenditures in the
year of their purchase, relative to present law. This increase
in after-tax returns on investment in business equipment and
certain other depreciable property is expected to provide an
incentive for an increase in savings and investment, resulting
in an increase in business capital stock and the overall size
of the economy, as measured by gross domestic product
(``GDP''). Estimates of the extent of these effects depend on
various modeling assumptions described below.
---------------------------------------------------------------------------
\44\Congressional Budget Office, The Budget and Economic Outlook:
2014-2024, February 4, 2014.
\45\1ADescriptions of these models may be found in Joint Committee
on Taxation, Summary of Economic Models and Estimating Practices of the
Staff of the Joint Committee on Taxation (JCX-46-11), September 19,
2011. The OLG model is leased from Tax Policy Advisors, LLC. Key
behavioral parameters are provided in an appendix to the current
document.
---------------------------------------------------------------------------
Discussion of proposal and modeling approach
The following analysis was performed using the Joint
Committee on Taxation staff's MEG model and an OLG model. Both
models start with the standard, neoclassical assumption that
the amount of output is determined by the availability of labor
and capital, and that in the long run aggregate demand equals
aggregate supply. Individuals are assumed to make decisions
based on observed characteristics of the economy, including
wages, prices, interest rates, tax rates, and government
spending levels. Of particular relevance to this bill, firms'
investment decisions are based on the expected after-tax rate
of return from the investment.
The bill would permanently extend a provision that allows
businesses to deduct 50 percent of their investment in
equipment (and a small, targeted subset of real property) in
the year in which the equipment or property is placed in
service, and depreciate the balance over the longer periods of
time that apply to the full amount under present law. The
effect of this incentive on the after-tax return on capital is
modeled within both the MEG and OLG models by comparing the net
present value of tax depreciation under the bill with that
under present law. This change is calculated using the Joint
Committee on Taxation staff's depreciation model, which models
deduction patterns for each category of depreciable capital
specified under the present law Modified Accelerated Cost
Recovery System (``MACRS''), and can be configured to model any
change in that pattern under proposed legislation. The effect
of the bill on business tax revenues is simulated in both
models by reducing average tax rates on businesses.
In the MEG model, monetary policy conducted by the Federal
Reserve Board is explicitly modeled, with lagged price
adjustments allowing for the economy to be temporarily out of
equilibrium in response to fiscal and monetary policy changes.
The MEG model is used to examine the importance of different
assumptions about Federal Reserve policy. Under the
``Aggressive Fed'' policy, it is assumed that the Federal
Reserve Board works to counteract any demand incentives
resulting from fiscal policy. Because for this proposal the
policy results in an incentive for people to increase their
rate of savings, thus reducing their rate of consumption, the
aggressive Fed simulation reduces interest rates to counter
negative aggregate demand effects. It is not clear how
effective such a policy would be in the context of an economy
with interest rates already hovering near zero. The ``Neutral
Fed'' simulations assume that the Federal Reserve Board targets
a fixed monetary growth rate, and does not try to counteract
fiscal policy.
The MEG model is also used to present results using
differing assumptions about the responsiveness of savings and
investment to changes in the after-tax rate of return to
capital. The ``default savings elasticity'' simulations use
savings responsiveness parameters that are consistent with the
median range of measured response levels from empirical
studies. The ``high savings elasticity'' simulations increase
savings responsiveness by about 15 percent.
Individuals in the MEG model do not anticipate future
changes in the economy or government finances; thus, this type
of model is often referred to as a ``myopic'' behavior model.
This feature of the MEG model allows the simulation of tax and
government expenditure policy that may result in an
unsustainable growth path. Specifically, policies that result
in the Federal debt increasing, or decreasing at a faster rate
than the growth of GDP, can be modeled.
In the OLG model, individuals are assumed to make
consumption and labor supply decisions to maximize their
lifetime well-being given the resources they can foresee will
be available to them. They are assumed to have complete
information, or ``perfect foresight,'' about economic
conditions, such as wages, prices, interest rates, tax rates,
and government spending, over their lifetimes. Economic
decisions are modeled separately for each of 55 adult-age
cohorts. Firms' investment decisions respond to the effects of
tax policy on the expected future value of the firm. Changes in
marginal tax rates on firm profits, and changes in the value of
deductions for investment affect this future valuation.
One important difference between the MEG and OLG models is
their treatment of Federal fiscal policy. In the MEG model, it
is possible to simulate structural Federal budget deficits as
forecast in the CBO baseline, and to allow for increases or
decreases in the deficit in simulating proposals. In contrast,
the OLG model cannot simulate either the present law fiscal
baseline or policy proposals that incorporate unsustainable
Federal budget deficits or surpluses. Thus, in the OLG model
there is no equilibrium solution when Federal budget conditions
appear unsustainable in the long run. It is necessary to create
counterfactual stable ratios of debt to GDP within both the
baseline and policy simulations of the OLG model.
The bill is projected to increase deficits by decreasing
business tax payments. Fiscal balance is achieved in the OLG
simulations by reducing transfer payments enough to maintain a
stable debt to GDP path. We present two variations of this
assumption. In the ``concurrent fiscal balance'' simulation,
transfer payments are modified each year. In the ``delayed
fiscal balance'' simulation, the tax changes are debt-financed
within the 10-year budget window, after which transfer payments
are decreased to restore a stable debt to GDP path.
Macroeconomic analysis
The ability to expense, rather than depreciate investment
expenses reduces the cost to firms of making these investments,
thus reducing their after-tax cost of capital and providing an
incentive for increased investment.\46\ Some research on the
effects of expensing on business investment has confirmed that
investment increases when more generous expensing policy is in
effect.\47\ Other research has raised questions about the
efficacy of expensing as opposed to investment tax credits in
encouraging investment in light of the fact that investment tax
credits produce a more favorable picture in firm financial
statements. However, such studies still find an overall
positive effect of increased expensing on investment.\48\
---------------------------------------------------------------------------
\46\Economic theory of the effects of ``cost of capital'' on
investment was first formalized by Dale Jorgenson in 1963 ``Capital
Theory and Investment Behavior,'' American Economic Review, 54, pp.
247-59. Jorgenson, along with Robert Hall added effects of taxation,
particularly depreciation policy to this framework in ``Tax Policy and
Investment Behavior,'' American Economic Review, 57(3), pp 391-414 in
1967. Many macroeconomic simulation models, including the Joint
Committee on Taxation staff Macroeconomic Equilibrium Growth model, use
this framework to model investment decisions.
\47\See, for example, Bond, Stephen, and Jing Xin, ``Corporate
Taxation and Capital Accumulation,'' Oxford University Centre for
Business Taxation Working Paper, Said Business School, Oxford, UK,
2010.
\48\See, for example, Edgerton, Jesse, ``Investment, Accounting,
and the Salience of the Corporate Income Tax,'' Finance and Discussion
Series, Division of Research and Statistics and Monetary Affairs,
Federal Reserve Board, Washington, D.C., March 21, 2011.
---------------------------------------------------------------------------
The Joint Committee on Taxation staff estimates that
approximately 40 percent of investments made under present law
could potentially be eligible for the 50-percent expensing
treatment provided for in this bill. However, not all
businesses making eligible investments will be able to take
full advantage of this benefit.\49\ Thus, the bill is expected
to provide a modest incentive for an increase in investment,
which is expected to result in a small increase in GDP.
---------------------------------------------------------------------------
\49\For taxpayers carrying forward a loss or claiming a loss in the
current year, the present value of bonus depreciation associated with
equipment placed in service in the current year is diminished.
Similarly, the value of claiming the alternative minimum tax credit
provided by the bill as an alternative to bonus depreciation will
depend on the taxpayer's particular situation.
---------------------------------------------------------------------------
Following is a series of tables that show the effects of
this proposal on real (inflation adjusted) gross domestic
product, receipts, capital stock, employment, and consumption.
Results from each policy simulation for each variable are
presented as percentage changes from the levels forecasted
under the present-law baseline for the variables in each of
Tables 1 through 8 below.
1. Effects on real gross domestic product and receipts
TABLE 1.--PERCENT CHANGE IN REAL GDP RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Years 2015- Years 2020- Years 2015-
2019 2024 2024
----------------------------------------------------------------------------------------------------------------
MEG:
Default Savings Elasticity............ Aggressive Fed............... 0.1% 0.2% 0.2%
Neutral Fed.................. 0.1% 0.2% 0.2%
High Savings Elasticity............... Aggressive Fed............... 0.1% 0.3% 0.2%
Neutral Fed.................. 0.1% 0.2% 0.2%
OLG:
Concurrent fiscal balance............. ............................. 0.1% 0.3% 0.2%
Delayed fiscal balance................ ............................. 0.1% 0.3% 0.2%
----------------------------------------------------------------------------------------------------------------
TABLE 2.--PERCENT CHANGE IN RECEIPTS DUE TO CHANGES IN GDP
----------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Years 2015- Years 2020- Years 2015-
2019 2024 2024
----------------------------------------------------------------------------------------------------------------
MEG:
Default Savings Elasticity............ Aggressive Fed............... -0.1% 0.1% (1)
Neutral Fed.................. -0.1% 0.1% (1)
High Savings Elasticity............... Aggressive Fed............... -0.1% 0.1% (1)
Neutral Fed.................. -0.1% 0.1% (2)
OLG:
Concurrent fiscal balance............. ............................. (1) (1) (1)
Delayed fiscal balance................ ............................. (1) (1) (1)
----------------------------------------------------------------------------------------------------------------
(1) Indicates an increase of less than 0.05 percent.
(2) Indicates a decrease of less than 0.05 percent.
Table 1 shows the predicted effects of this policy on real
gross domestic product, relative to what is projected under
present law. Table 2 shows the predicted effects of these
output changes on receipts. Relative to present law, real GDP
is predicted to increase in the first half of the budget
period, by about 0.1 percent, and to increase GDP by 0.2 to 0.3
percent during the second five years of the budget period,
overall increasing GDP on average by about 0.2 percent over the
ten-year budget period. Among the MEG simulations, the higher
predicted increase in the second-five-years is generated by the
simulation that combines a higher responsiveness of savings to
the after-tax rate of return with an aggressive Fed response.
The higher savings responsiveness, while it leads to a bigger
investment response, necessarily also leads to a decrease in
the rate of consumption, which can reduce aggregate demand in
the economy if there are unemployed resources. The aggressive
Fed response assumes that the Fed would act to counter that
reduction in demand.
The OLG simulations also predict an increase in GDP of 0.3
percent for the second half of the budget period. In the OLG
simulations, the reduction in transfer payments that provides
the fiscal balance for the revenue loss generated by this
proposal provides some additional incentive for individuals to
increase savings and investment.
The simulations show that the projected increase in GDP
also results in a small projected increase in Federal revenues
of up to 0.1 percent of present law receipts in the second half
of the budget period, but overall of less than 0.05 percent
over the budget period. The change in receipts due to the
economic growth projected under the bill is projected to be
smaller than the change in GDP, even negative over the ten-year
budget period under one simulation assumption. This receipts
pattern is driven by the interaction of the specific tax change
under the bill with the type of economic activity generated by
the bill. That is, by increasing the deductibility of (mostly)
equipment expenditures, the bill provides an incentive for more
investment in equipment. This is expected to lead to an
increase in productive capital stock that will, over time,
generate additional growth capacity in the economy. Additional
income generated by these responses can be expected to build
slowly. At the same time, the increase in deductible purchases
may result in a net reduction in the tax base. This effect is
apparent in the MEG simulations, which project a reduction in
receipts due to the induced investment in the first half of the
budget period.
In the following sections on capital stock, employment, and
consumption effects, the influence of these proposals on each
of these components of growth and the economy can be seen in
more detail.
2. Effects on the capital stock
Tables 3 and 4, respectively, show the projected effects of
the bill on business and housing capital stock. As discussed
above, by increasing the after-tax rate of return for qualified
capital--primarily equipment--the bill provides an incentive
for increased investment in that capital. As shown in Table 3,
this is projected to result in an increase in business capital
stock relative to present law of up to 1.4 percent during the
2020-2024 period, and up to 1.0 percent on average over the
ten-year budget period. In the MEG simulations, the size of the
projected increase depends on how sensitive the savings
response is to the incentive, and on whether the Fed acts to
offset reduced consumption that results from the savings
response.
Structures are not eligible for the 50-percent expensing
provided in the bill. Therefore, the bill provides an incentive
for some substitution away from investment in housing toward
investment in business capital. Table 4 shows that the bill is
projected to result in a 0.1 percent decrease in owner-occupied
and rental housing units, referred to as ``housing stock.''
TABLE 3.--PERCENT CHANGE IN REAL BUSINESS CAPITAL RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Years 2015- Years 2020- Years 2015-
2019 2024 2024
----------------------------------------------------------------------------------------------------------------
MEG:
Default Savings Elasticity............ Aggressive Fed............... 0.4% 0.8% 0.6%
Neutral Fed.................. 0.4% 0.8% 0.6%
High Savings Elasticity............... Aggressive Fed............... 0.5% 1.0% 0.8%
Neutral Fed.................. 0.4% 0.9% 0.7%
OLG:
Concurrent fiscal balance............. ............................. 0.5% 1.4% 1.0%
Delayed fiscal balance................ ............................. 0.5% 1.4% 0.9%
----------------------------------------------------------------------------------------------------------------
TABLE 4.--PERCENT CHANGE IN REAL RESIDENTIAL CAPITAL RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Years 2015- Years 2020- Years 2015-
2019 2024 2024
----------------------------------------------------------------------------------------------------------------
MEG:
Default Savings Elasticity............ Aggressive Fed............... -0.1% -0.1% -0.1%
Neutral Fed.................. -0.1% -0.1% -0.1%
High Savings Elasticity............... Aggressive Fed............... -0.1% -0.1% -0.1%
Neutral Fed.................. -0.1% -0.1% -0.1%
OLG:
Concurrent fiscal balance............. ............................. -0.1% -0.1% -0.1%
Delayed fiscal balance................ ............................. -0.1% -0.1% -0.1%
----------------------------------------------------------------------------------------------------------------
3. Effects on private sector employment
The increase in business capital generated by the bill can
be expected, over time, to generate an increase in demand for
labor by increasing productivity and wage rates. Because the
projected changes in capital stock are relatively modest, these
induced effects on labor force participation and employment are
also projected to be modest--less than 0.05 percent, as
illustrated in Table 6.
TABLE 6.--PERCENT CHANGE IN LABOR FORCE PARTICIPATION RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Years 2015- Years 2020- Years 2015-
2019 2024 2024
----------------------------------------------------------------------------------------------------------------
MEG:
Default Savings Elasticity............ Aggressive Fed............... (1) (1) (1)
Neutral Fed.................. (1) (1) (1)
High Savings Elasticity............... Aggressive Fed............... (1) (1) (1)
Neutral Fed.................. (1) (1) (1)
OLG:
Concurrent fiscal balance............. ............................. (1) (1) (1)
Delayed fiscal balance................ ............................. (1) (1) (1)
----------------------------------------------------------------------------------------------------------------
(1) Indicates an increase of less than 0.05 percent
TABLE 7.--PERCENT CHANGE IN PRIVATE SECTOR EMPLOYMENT RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Years 2015- Years 2020- Years 2015-
2019 2024 2024
----------------------------------------------------------------------------------------------------------------
MEG:
Default Savings Elasticity............ Aggressive Fed............... (1) (1) (1)
Neutral Fed.................. (1) (1) (1)
High Savings Elasticity............... Aggressive Fed............... (1) (1) (1)
Neutral Fed.................. (2) (2) (2)
OLG:
Concurrent fiscal balance............. ............................. (1) (1) (1)
Delayed fiscal balance................ ............................. (1) (1) (1)
----------------------------------------------------------------------------------------------------------------
(1) Indicates an increase of less than 0.05 percent
(2) Indicates a decrease of less than 0.05 percent
Table 7 shows changes in employment predicted to result
from the proposal. While the willingness of people to work at a
given combination of wage rates and taxes on wages is an
important component of total employment, changes in employment
are also influenced by the amount of business demand for labor.
In the OLG model, which does not model less than full
employment of resources, labor supply and employment effects
are equivalent. In the MEG model, which allows for less than
full employment, they can be different. Thus, in the MEG
simulation that combines a higher savings/lower consumption
rate with a neutral Fed that does not act to counteract the
reduced consumption effect, employment is projected to decline
by a small amount relative to present law.
4. Effects on consumption
Table 8 shows how the proposal affects consumption relative
to present law. In addition to the interaction between
consumption demand and short-term economic growth, consumption
is often of interest as an indicator of individuals' well-
being. Generally, increased growth facilitates more
consumption. Because this bill is projected to increase growth
by providing an incentive for people to increase savings and
investment, which will lead to an increase in the business
capital stock, the effect of the bill on consumption is
expected to change over time. For a given level of income, an
increase in the savings rate is equivalent to a decrease in the
rate of consumption. In the first half of the budget period,
the negative effect of the increase in savings on consumption
is projected to outweigh the positive effect from income
generated by investment, leading to a modest decline in
consumption. As additions to the business capital stock
accumulate over time, the accompanying increase in income is
projected to lead to a net increase in consumption, by about
0.1 percent relative to present law on average over the second
half of the budget period. This effect occurs more quickly in
the MEG model simulations than in the OLG simulations, as
evidenced by a projected positive effect on average over the
whole budget period in most of the MEG simulations, in contrast
with a small net negative effect on average over the ten years
in the OLG simulations.
TABLE 8.--PERCENT CHANGE IN CONSUMPTION RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Years 2015- Years 2020- Years 2015-
2019 2024 2024
----------------------------------------------------------------------------------------------------------------
MEG:
Default Savings Elasticity............ Aggressive Fed............... (2) 0.1% 0.1%
Neutral Fed.................. (2) 0.1% 0.1%
High Savings Elasticity...............
Aggressive Fed............... (2) 0.1% 0.1%
Neutral Fed.................. -0.1% 0.1% (1)
OLG:
Concurrent fiscal balance............. ............................. -0.1% 0.1% (2)
Delayed fiscal balance................ ............................. -0.1% 0.1% (2)
----------------------------------------------------------------------------------------------------------------
(1) Indicates an increase of less than 0.05 percent
(2) Indicates a decrease of less than 0.05 percent
Conclusion
The 50-percent expensing of certain investment expenditures
provided for in this bill increases the after-tax rate of
return for investment in qualified expenditures, providing an
incentive for increased investment in qualified capital. It
also provides an incentive for some substitution away from
housing investment toward qualified investment--mostly business
equipment. Thus, the bill is expected to result in a small
increase in business capital stock, and in GDP, relative to
present law.
Appendix--key parameter assumptions
The amount of taxpayer response to changes in tax policy is
governed by how sensitive their work, consumption, and savings
decisions are to changes in the after-tax rate of return to
additional work or investment and to changes in their
disposable income. Tables A-1 and A-2 below show the parameters
used to model the degree of responsiveness for the MEG and OLG
models respectively.
Table A.1.--PARAMETER ASSUMPTIONS IN THE MEG MODEL
------------------------------------------------------------------------
Low
Labor supply elasticities in Income Substitution Elasticity
disaggregated labor supply Substitution
------------------------------------------------------------------------
Low income primary............. -0.1 0.2 0.15
Other primary.................. -0.1 0.1 0.1
Low income secondary........... -0.3 0.8 0.4
Other secondary................ -0.2 0.6 0.3
Wage-weighted population -0.1 0.2 0.1
average with average baseline
rates.........................
------------------------------------------------------------------------
Savings/consumption parameters underlying lifecycle consumption function
------------------------------------------------------------------------
Rate of time preference........ 0.015 ............ ............
Intertemporal elasticity of 0.35 ............ ............
substitution-default..........
Derived long-run savings 0.25 ............ ............
elasticity to the after-tax
rate of return on capital--
default.......................
Intertemporal elasticity of 0.45 ............ ............
substitution-high.............
Derived long-run savings 0.29 ............ ............
elasticity to the after-tax
rate of return on capital--
high..........................
------------------------------------------------------------------------
TABLE A.2.--PARAMETER ASSUMPTIONS IN THE OLG MODEL
------------------------------------------------------------------------
Description Value
------------------------------------------------------------------------
Time preference...................................... 0.015
Intertemporal elasticity of substitution............. 0.4
Intratemporal elasticity of substitution between 0.6
consumption and leisure.............................
Leisure share of time endowment...................... 0.4
Population growth rate............................... 0.01
Technological growth rate............................ 0.016
Capital share non-housing............................ 0.25
Capital share housing................................ 0.975
Adjustment cost (quadratic function)................. 5
------------------------------------------------------------------------
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the provisions of H.R. 4718 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the bill, and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.
E. Tax Complexity Analysis
The following statement is made pursuant to clause 3(h)(1)
of rule XIII of the Rules of the House of Representatives.
Section 4022(b) of the Internal Revenue Service Restructuring
and Reform Act of 1998 (the ``IRS Reform Act'') requires the
staff of the Joint Committee on Taxation (in consultation with
the Internal Revenue Service and the Treasury Department) to
provide a tax complexity analysis. The complexity analysis is
required for all legislation reported by the Senate Committee
on Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
and has widespread applicability to individuals or small
businesses. For each such provision identified by the staff of
the Joint Committee on Taxation a summary description of the
provision is provided along with an estimate of the number and
type of affected taxpayers, and a discussion regarding the
relevant complexity and administrative issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS and Treasury regarding
each of the provisions included in the complexity analysis.
1. BONUS DEPRECIATION MODIFIED AND MADE PERMANENT
Summary description of the provisions
Bonus depreciation
The bill makes permanent the 50-percent additional first-
year depreciation deduction for qualified property.
The bill expands the definition of qualified property to
include qualified retail improvement property.
The $8,000 increase amount in the limitation on the
depreciation deductions allowed with respect to certain
passenger automobiles is indexed for automobile price
inflation. The increase does not apply to a taxpayer who elects
to accelerate AMT credits for a taxable year.
The bill also makes permanent the special rule for the
allocation of bonus depreciation to a long-term contract, which
provides that solely for purposes of determining the percentage
of completion under section 460(b)(1)(A), the cost of qualified
property with a MACRS recovery period of seven years or less is
taken into account as a cost allocated to the contract as if
bonus depreciation had not been enacted.
Expansion of election to accelerate AMT credits in lieu of
bonus depreciation
The bill makes permanent and modifies the election to
increase the AMT credit limitation in lieu of bonus
depreciation. Under the bill, the bonus depreciation amount for
a taxable year (as defined under present law with respect to
all qualified property) is limited to the lesser of (1) 50
percent of the minimum tax credit for the first taxable year
ending after December 31, 2013 (determined before the
application of any tax liability limitation), or (2) the
minimum tax credit for the taxable year allocable to the
adjusted net minimum tax imposed for taxable years ending
before January 1, 2014 (determined before the application of
any tax liability limitation and determined on a first-in,
first-out basis).
The bill also provides that in the case of a partnership
having a single corporate partner owning (directly or
indirectly) more than 50-percent capital and profits interests
in the partnership, each partner takes into account its
distributive share of partnership depreciation in determining
its bonus depreciation amount.
Special rules for trees and vines bearing fruits and nuts
In addition, the bill allows a taxpayer to claim bonus
depreciation on trees or vines bearing fruits or nuts, in the
taxable year in which the tree or vine is planted, or grafted
to a plant that has already been planted, by the taxpayer in
the ordinary course of the taxpayer's farming business
(notwithstanding that the tree or vine has not yet been placed
in service in that year). The adjusted basis of the tree or
vine is reduced by the amount of the deduction under this
provision. Further, any amount deducted under this provision is
not subject to capitalization under section 263A. A taxpayer
may elect to have this provision not apply to trees or vines
planted or grafted in that taxable year. If a taxpayer does not
elect out of this provision, the tree or vine will not be
eligible for bonus depreciation in the subsequent taxable year
in which it is placed in service.
Number of affected taxpayers
It is estimated that the provision will affect over ten
percent of small business tax returns.
Discussion
While taxpayers placing in service qualified property will
still be required to complete and file Form 4562, Depreciation
and Amortization (Including Information on Listed Property),
significantly less detail is required to be included on such
form. Accordingly, the compliance burden of many taxpayers will
be reduced.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with Sec. 3(j)(2) of H. Res. 5 (113th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169). The Committee also states that the Government
Accountability Office has included bonus depreciation in a
report to Congress pursuant to section 21 of Public Law 111-
139.
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(k) of H. Res. 5 (113th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no more
than one directed rule making within the meaning of such
section; whether or not the bill requires a directed rule
making is ambiguous because the bill directs the Secretary to
increase the applicable depreciation limitation for passenger
vehicles under section 280F by $8,000 for purposes of
calculating allowable bonus depreciation but without reference
to a specific rule making.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
* * * * * * *
SEC. 168. ACCELERATED COST RECOVERY SYSTEM.
(a) * * *
* * * * * * *
(e) Classification of Property.--For purposes of this
section--
(1) * * *
* * * * * * *
(8) Qualified retail improvement property.--
(A) * * *
* * * * * * *
[(D) Exclusion from bonus depreciation.--
Property described in this paragraph shall not
be considered qualified property for purposes
of subsection (k).]
* * * * * * *
(k) Special Allowance for Certain Property [Acquired After
December 31, 2007, and Before January 1, 2014].--
(1) * * *
[(2) Qualified property.--For purposes of this
subsection--
[(A) In general.--The term ``qualified
property'' means property--
[(i)(I) to which this section applies
which has a recovery period of 20 years
or less,
[(II) which is computer
software (as defined in section
167(f)(1)(B)) for which a
deduction is allowable under
section 167(a) without regard
to this subsection,
[(III) which is water utility
property, or
[(IV) which is qualified
leasehold improvement property,
[(ii) the original use of which
commences with the taxpayer after
December 31, 2007,
[(iii) which is--
[(I) acquired by the taxpayer
after December 31, 2007, and
before January 1, 2014, but
only if no written binding
contract for the acquisition
was in effect before January 1,
2008, or
[(II) acquired by the
taxpayer pursuant to a written
binding contract which was
entered into after December 31,
2007, and before January 1,
2014, and
[(iv) which is placed in service by
the taxpayer before January 1, 2014,
or, in the case of property described
in subparagraph (B) or (C), before
January 1, 2015.
[(B) Certain property having longer
production periods treated as qualified
property.--
[(i) In general.--The term
``qualified property'' includes any
property if such property--
[(I) meets the requirements
of clauses (i), (ii), (iii),
and (iv) of subparagraph (A),
[(II) has a recovery period
of at least 10 years or is
transportation property,
[(III) is subject to section
263A, and
[(IV) meets the requirements
of clause (iii) of section
263A(f)(1)(B) (determined as if
such clauses also apply to
property which has a long
useful life (within the meaning
of section 263A(f))).
[(ii) Only pre-January 1, 2014, basis
eligible for additional allowance.--In
the case of property which is qualified
property solely by reason of clause
(i), paragraph (1) shall apply only to
the extent of the adjusted basis
thereof attributable to manufacture,
construction, or production before
January 1, 2014.
[(iii) Transportation property.--For
purposes of this subparagraph, the term
``transportation property'' means
tangible personal property used in the
trade or business of transporting
persons or property.
[(iv) Application of subparagraph.--
This subparagraph shall not apply to
any property which is described in
subparagraph (C).
[(C) Certain aircraft.--The term ``qualified
property'' includes property--
[(i) which meets the requirements of
clauses (ii), (iii), and (iv) of
subparagraph (A),
[(ii) which is an aircraft which is
not a transportation property (as
defined in subparagraph (B)(iii)) other
than for agricultural or firefighting
purposes,
[(iii) which is purchased and on
which such purchaser, at the time of
the contract for purchase, has made a
nonrefundable deposit of the lesser
of--
[(I) 10 percent of the cost,
or
[(II) $100,000, and
[(iv) which has--
[(I) an estimated production
period exceeding 4 months, and
[(II) a cost exceeding
$200,000.
[(D) Exceptions.--
[(i) Alternative depreciation
property.--The term ``qualified
property'' shall not include any
property to which the alternative
depreciation system under subsection
(g) applies, determined--
[(I) without regard to
paragraph (7) of subsection (g)
(relating to election to have
system apply), and
[(II) after application of
section 280F(b) (relating to
listed property with limited
business use).
[(ii) Qualified New York Liberty Zone
leasehold improvement property.--The
term ``qualified property'' shall not
include any qualified New York Liberty
Zone leasehold improvement property (as
defined in section 1400L(c)(2)).
[(iii) Election out.--If a taxpayer
makes an election under this clause
with respect to any class of property
for any taxable year, this subsection
shall not apply to all property in such
class placed in service during such
taxable year.
[(E) Special rules.--
[(i) Self-constructed property.--In
the case of a taxpayer manufacturing,
constructing, or producing property for
the taxpayer's own use, the
requirements of clause (iii) of
subparagraph (A) shall be treated as
met if the taxpayer begins
manufacturing, constructing, or
producing the property after December
31, 2007, and before January 1, 2014.
[(ii) Sale-leasebacks.--For purposes
of clause (iii) and subparagraph
(A)(ii), if property is--
[(I) originally placed in
service after December 31,
2007, by a person, and
[(II) sold and leased back by
such person within 3 months
after the date such property
was originally placed in
service,
such property shall be treated as
originally placed in service not
earlier than the date on which such
property is used under the leaseback
referred to in subclause (II).
[(iii) Syndication.--For purposes of
subparagraph (A)(ii), if--
[(I) property is originally
placed in service after
December 31, 2007, by the
lessor of such property,
[(II) such property is sold
by such lessor or any
subsequent purchaser within 3
months after the date such
property was originally placed
in service (or, in the case of
multiple units of property
subject to the same lease,
within 3 months after the date
the final unit is placed in
service, so long as the period
between the time the first unit
is placed in service and the
time the last unit is placed in
service does not exceed 12
months), and
[(III) the user of such
property after the last sale
during such 3-month period
remains the same as when such
property was originally placed
in service,
such property shall be treated as
originally placed in service not
earlier than the date of such last
sale.
[(iv) Limitations related to users
and related parties.--The term
``qualified property'' shall not
include any property if--
[(I) the user of such
property (as of the date on
which such property is
originally placed in service)
or a person which is related
(within the meaning of section
267(b) or 707(b)) to such user
or to the taxpayer had a
written binding contract in
effect for the acquisition of
such property at any time on or
before December 31, 2007, or
[(II) in the case of property
manufactured, constructed, or
produced for such user's or
person's own use, the
manufacture, construction, or
production of such property
began at any time on or before
December 31, 2007.
[(F) Coordination with section 280F.--For
purposes of section 280F--
[(i) Automobiles.--In the case of a
passenger automobile (as defined in
section 280F(d)(5)) which is qualified
property, the Secretary shall increase
the limitation under section
280F(a)(1)(A)(i) by $8,000.
[(ii) Listed property.--The deduction
allowable under paragraph (1) shall be
taken into account in computing any
recapture amount under section
280F(b)(2).
[(G) Deduction allowed in computing minimum
tax.--For purposes of determining alternative
minimum taxable income under section 55, the
deduction under subsection (a) for qualified
property shall be determined under this section
without regard to any adjustment under section
56.]
(2) Qualified property.--For purposes of this
subsection--
(A) In general.--The term ``qualified
property'' means property--
(i)(I) to which this section applies
which has a recovery period of 20 years
or less,
(II) which is computer software (as
defined in section 167(f)(1)(B)) for
which a deduction is allowable under
section 167(a) without regard to this
subsection,
(III) which is water utility
property,
(IV) which is qualified leasehold
improvement property, or
(V) which is qualified retail
improvement property, and
(ii) the original use of which
commences with the taxpayer.
(B) Exception for alternative depreciation
property.--The term ``qualified property''
shall not include any property to which the
alternative depreciation system under
subsection (g) applies, determined--
(i) without regard to paragraph (7)
of subsection (g) (relating to election
to have system apply), and
(ii) after application of section
280F(b) (relating to listed property
with limited business use).
(C) Special rules.--
(i) Sale-leasebacks.--For purposes of
clause (ii) and subparagraph (A)(ii),
if property is--
(I) originally placed in
service by a person, and
(II) sold and leased back by
such person within 3 months
after the date such property
was originally placed in
service,
such property shall be treated as
originally placed in service not
earlier than the date on which such
property is used under the leaseback
referred to in subclause (II).
(ii) Syndication.--For purposes of
subparagraph (A)(ii), if--
(I) property is originally
placed in service by the lessor
of such property,
(II) such property is sold by
such lessor or any subsequent
purchaser within 3 months after
the date such property was
originally placed in service
(or, in the case of multiple
units of property subject to
the same lease, within 3 months
after the date the final unit
is placed in service, so long
as the period between the time
the first unit is placed in
service and the time the last
unit is placed in service does
not exceed 12 months), and
(III) the user of such
property after the last sale
during such 3-month period
remains the same as when such
property was originally placed
in service,
such property shall be treated as
originally placed in service not
earlier than the date of such last
sale.
(D) Coordination with section 280F.--For
purposes of section 280F--
(i) Automobiles.--In the case of a
passenger automobile (as defined in
section 280F(d)(5)) which is qualified
property, the Secretary shall increase
the limitation under section
280F(a)(1)(A)(i) by $8,000.
(ii) Listed property.--The deduction
allowable under paragraph (1) shall be
taken into account in computing any
recapture amount under section
280F(b)(2).
(iii) Inflation adjustment.--In the
case of any taxable year beginning in a
calendar year after 2014, the $8,000
amount in clause (i) shall be increased
by an amount equal to--
(I) such dollar amount,
multiplied by
(II) the automobile price
inflation adjustment determined
under section 280F(d)(7)(B)(i)
for the calendar year in which
such taxable year begins by
substituting ``2013'' for
``1987'' in subclause (II)
thereof.
If any increase under the preceding
sentence is not a multiple of $100,
such increase shall be rounded to the
nearest multiple of $100.
(E) Deduction allowed in computing minimum
tax.--For purposes of determining alternative
minimum taxable income under section 55, the
deduction under section 167 for qualified
property shall be determined without regard to
any adjustment under section 56.
* * * * * * *
[(4) Election to accelerate the AMT and research
credits in lieu of bonus depreciation.--
[(A) In general.--If a corporation elects to
have this paragraph apply for the first taxable
year of the taxpayer ending after March 31,
2008, in the case of such taxable year and each
subsequent taxable year--
[(i) paragraph (1) shall not apply to
any eligible qualified property placed
in service by the taxpayer,
[(ii) the applicable depreciation
method used under this section with
respect to such property shall be the
straight line method, and
[(iii) each of the limitations
described in subparagraph (B) for any
such taxable year shall be increased by
the bonus depreciation amount which
is--
[(I) determined for such
taxable year under subparagraph
(C), and
[(II) allocated to such
limitation under subparagraph
(E).
[(B) Limitations to be increased.--The
limitations described in this subparagraph
are--
[(i) the limitation imposed by
section 38(c), and
[(ii) the limitation imposed by
section 53(c).
[(C) Bonus depreciation amount.--For purposes
of this paragraph--
[(i) In general.--The bonus
depreciation amount for any taxable
year is an amount equal to 20 percent
of the excess (if any) of--
[(I) the aggregate amount of
depreciation which would be
allowed under this section for
eligible qualified property
placed in service by the
taxpayer during such taxable
year if paragraph (1) applied
to all such property, over
[(II) the aggregate amount of
depreciation which would be
allowed under this section for
eligible qualified property
placed in service by the
taxpayer during such taxable
year if paragraph (1) did not
apply to any such property.
The aggregate amounts determined under
subclauses (I) and (II) shall be
determined without regard to any
election made under subsection
(b)(2)(C), (b)(3)(D), or (g)(7) and
without regard to subparagraph (A)(ii).
[(ii) Maximum amount.--The bonus
depreciation amount for any taxable
year shall not exceed the maximum
increase amount under clause (iii),
reduced (but not below zero) by the sum
of the bonus depreciation amounts for
all preceding taxable years.
[(iii) Maximum increase amount.--For
purposes of clause (ii), the term
``maximum increase amount'' means, with
respect to any corporation, the lesser
of--
[(I) $30,000,000, or
[(II) 6 percent of the sum of
the business credit increase
amount, and the AMT credit
increase amount, determined
with respect to such
corporation under subparagraph
(E).
[(iv) Aggregation rule.--All
corporations which are treated as a
single employer under section 52(a)
shall be treated--
[(I) as 1 taxpayer for
purposes of this paragraph, and
[(II) as having elected the
application of this paragraph
if any such corporation so
elects.
[(D) Eligible qualified property.--For
purposes of this paragraph, the term ``eligible
qualified property'' means qualified property
under paragraph (2), except that in applying
paragraph (2) for purposes of this paragraph--
[(i) ``March 31, 2008'' shall be
substituted for ``December 31, 2007''
each place it appears in subparagraph
(A) and clauses (i) and (ii) of
subparagraph (E) thereof,
[(ii) ``April 1, 2008'' shall be
substituted for ``January 1, 2008'' in
subparagraph (A)(iii)(I) thereof, and
[(iii) only adjusted basis
attributable to manufacture,
construction, or production--
[(I) after March 31, 2008,
and before January 1, 2010, and
[(II) after December 31,
2010, and before January 1,
2014, shall be taken into
account under subparagraph
(B)(ii) thereof.
[(E) Allocation of bonus depreciation
amounts.--
[(i) In general.--Subject to clauses
(ii) and (iii), the taxpayer shall, at
such time and in such manner as the
Secretary may prescribe, specify the
portion (if any) of the bonus
depreciation amount for the taxable
year which is to be allocated to each
of the limitations described in
subparagraph (B) for such taxable year.
[(ii) Limitation on allocations.--The
portion of the bonus depreciation
amount which may be allocated under
clause (i) to the limitations described
in subparagraph (B) for any taxable
year shall not exceed--
[(I) in the case of the
limitation described in
subparagraph (B)(i), the excess
of the business credit increase
amount over the bonus
depreciation amount allocated
to such limitation for all
preceding taxable years, and
[(II) in the case of the
limitation described in
subparagraph (B)(ii), the
excess of the AMT credit
increase amount over the bonus
depreciation amount allocated
to such limitation for all
preceding taxable years.
[(iii) Business credit increase
amount.--For purposes of this
paragraph, the term ``business credit
increase amount'' means the amount
equal to the portion of the credit
allowable under section 38 (determined
without regard to subsection (c)
thereof) for the first taxable year
ending after March 31, 2008, which is
allocable to business credit
carryforwards to such taxable year
which are--
[(I) from taxable years
beginning before January 1,
2006, and
[(II) properly allocable
(determined under the rules of
section 38(d)) to the research
credit determined under section
41(a).
[(iv) AMT credit increase amount.--
For purposes of this paragraph, the
term ``AMT credit increase amount''
means the amount equal to the portion
of the minimum tax credit under section
53(b) for the first taxable year ending
after March 31, 2008, determined by
taking into account only the adjusted
minimum tax for taxable years beginning
before January 1, 2006. For purposes of
the preceding sentence, credits shall
be treated as allowed on a first-in,
first- out basis.
[(F) Credit refundable.--For purposes of
section 6401(b), the aggregate increase in the
credits allowable under part IV of subchapter A
for any taxable year resulting from the
application of this paragraph shall be treated
as allowed under subpart C of such part (and
not any other subpart).
[(G) Other rules.--
[(i) Election.--Any election under
this paragraph (including any
allocation under subparagraph (E)) may
be revoked only with the consent of the
Secretary.
[(ii) Partnerships with electing
partners.--In the case of a corporation
making an election under subparagraph
(A) and which is a partner in a
partnership, for purposes of
determining such corporation's
distributive share of partnership items
under section 702--
[(I) paragraph (1) shall not
apply to any eligible qualified
property, and
[(II) the applicable
depreciation method used under
this section with respect to
such property shall be the
straight line method.
[(iii) Special rule for passenger
aircraft.--In the case of any passenger
aircraft, the written binding contract
limitation under paragraph
(2)(A)(iii)(I) shall not apply for
purposes of subparagraphs (C)(i)(I) and
(D).
[(H) Special rules for extension property.--
[(i) Taxpayers previously electing
acceleration.--In the case of a
taxpayer who made the election under
subparagraph (A) for its first taxable
year ending after March 31, 2008--
[(I) the taxpayer may elect
not to have this paragraph
apply to extension property,
but
[(II) if the taxpayer does
not make the election under
subclause (I), in applying this
paragraph to the taxpayer a
separate bonus depreciation
amount, maximum amount, and
maximum increase amount shall
be computed and applied to
eligible qualified property
which is extension property and
to eligible qualified property
which is not extension
property.
[(ii) Taxpayers not previously
electing acceleration.--In the case of
a taxpayer who did not make the
election under subparagraph (A) for its
first taxable year ending after March
31, 2008--
[(I) the taxpayer may elect
to have this paragraph apply to
its first taxable year ending
after December 31, 2008, and
each subsequent taxable year,
and
[(II) if the taxpayer makes
the election under subclause
(I), this paragraph shall only
apply to eligible qualified
property which is extension
property.
[(iii) Extension property.--For
purposes of this subparagraph, the term
``extension property'' means property
which is eligible qualified property
solely by reason of the extension of
the application of the special
allowance under paragraph (1) pursuant
to the amendments made by section
1201(a) of the American Recovery and
Reinvestment Tax Act of 2009 (and the
application of such extension to this
paragraph pursuant to the amendment
made by section 1201(b)(1) of such
Act).
[(I) Special rules for round 2 extension
property.--
[(i) In general.--In the case of
round 2 extension property, this
paragraph shall be applied without
regard to--
[(I) the limitation described
in subparagraph (B)(i) thereof,
and
[(II) the business credit
increase amount under
subparagraph (E)(iii) thereof.
[(ii) Taxpayers previously electing
acceleration.--In the case of a
taxpayer who made the election under
subparagraph (A) for its first taxable
year ending after March 31, 2008, or a
taxpayer who made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008--
[(I) the taxpayer may elect
not to have this paragraph
apply to round 2 extension
property, but
[(II) if the taxpayer does
not make the election under
subclause (I), in applying this
paragraph to the taxpayer the
bonus depreciation amount,
maximum amount, and maximum
increase amount shall be
computed and applied to
eligible qualified property
which is round 2 extension
property.
The amounts described in subclause (II)
shall be computed separately from any
amounts computed with respect to
eligible qualified property which is
not round 2 extension property.
[(iii) Taxpayers not previously
electing acceleration.--In the case of
a taxpayer who neither made the
election under subparagraph (A) for its
first taxable year ending after March
31, 2008, nor made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008--
[(I) the taxpayer may elect
to have this paragraph apply to
its first taxable year ending
after December 31, 2010, and
each subsequent taxable year,
and
[(II) if the taxpayer makes
the election under subclause
(I), this paragraph shall only
apply to eligible qualified
property which is round 2
extension property.
[(iv) Round 2 extension property.--
For purposes of this subparagraph, the
term ``round 2 extension property''
means property which is eligible
qualified property solely by reason of
the extension of the application of the
special allowance under paragraph (1)
pursuant to the amendments made by
section 401(a) of the Tax Relief,
Unemployment Insurance Reauthorization,
and Job Creation Act of 2010 (and the
application of such extension to this
paragraph pursuant to the amendment
made by section 401(c)(1) of such Act).
[(J) Special rules for round 3 extension
property.--
[(i) In general.--In the case of
round 3 extension property, this
paragraph shall be applied without
regard to--
[(I) the limitation described
in subparagraph (B)(i) thereof,
and
[(II) the business credit
increase amount under
subparagraph (E)(iii) thereof.
[(ii) Taxpayers previously electing
acceleration.--In the case of a
taxpayer who made the election under
subparagraph (A) for its first taxable
year ending after March 31, 2008, a
taxpayer who made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008, or a taxpayer who made the
election under subparagraph (I)(iii)
for its first taxable year ending after
December 31, 2010--
[(I) the taxpayer may elect
not to have this paragraph
apply to round 3 extension
property, but
[(II) if the taxpayer does
not make the election under
subclause (I), in applying this
paragraph to the taxpayer the
bonus depreciation amount,
maximum amount, and maximum
increase amount shall be
computed and applied to
eligible qualified property
which is round 3 extension
property.
The amounts described in subclause (II)
shall be computed separately from any
amounts computed with respect to
eligible qualified property which is
not round 3 extension property.
[(iii) Taxpayers not previously
electing acceleration.--In the case of
a taxpayer who neither made the
election under subparagraph (A) for its
first taxable year ending after March
31, 2008, nor made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008, nor made the election under
subparagraph (I)(iii) for any taxable
year ending after December 31, 2010--
[(I) the taxpayer may elect
to have this paragraph apply to
its first taxable year ending
after December 31, 2012, and
each subsequent taxable year,
and
[(II) if the taxpayer makes
the election under subclause
(I), this paragraph shall only
apply to eligible qualified
property which is round 3
extension property.
[(iv) Round 3 extension property.--
For purposes of this subparagraph, the
term ``round 3 extension property''
means property which is eligible
qualified property solely by reason of
the extension of the application of the
special allowance under paragraph (1)
pursuant to the amendments made by
section 331(a) of the American Taxpayer
Relief Act of 2012 (and the application
of such extension to this paragraph
pursuant to the amendment made by
section 331(c)(1) of such Act).
[(5) Special rule for property acquired during
certain pre-2012 periods.--In the case of qualified
property acquired by the taxpayer (under rules similar
to the rules of clauses (ii) and (iii) of paragraph
(2)(A)) after September 8, 2010, and before January 1,
2012, and which is placed in service by the taxpayer
before January 1, 2012 (January 1, 2013, in the case of
property described in subparagraph (2)(B) or (2)(C)),
paragraph (1)(A) shall be applied by substituting ``100
percent'' for ``50 percent''.]
(4) Election to accelerate amt credits in lieu of
bonus depreciation.--
(A) In general.--If a corporation elects to
have this paragraph apply for any taxable
year--
(i) paragraphs (1)(A), (2)(D)(i), and
(5)(A)(i) shall not apply for such
taxable year,
(ii) the applicable depreciation
method used under this section with
respect to any qualified property shall
be the straight line method, and
(iii) the limitation imposed by
section 53(c) for such taxable year
shall be increased by the bonus
depreciation amount which is determined
for such taxable year under
subparagraph (B).
(B) Bonus depreciation amount.--For purposes
of this paragraph--
(i) In general.--The bonus
depreciation amount for any taxable
year is an amount equal to 20 percent
of the excess (if any) of--
(I) the aggregate amount of
depreciation which would be
allowed under this section for
qualified property placed in
service by the taxpayer during
such taxable year if paragraph
(1) applied to all such
property, over
(II) the aggregate amount of
depreciation which would be
allowed under this section for
qualified property placed in
service by the taxpayer during
such taxable year if paragraph
(1) did not apply to any such
property.
The aggregate amounts determined under
subclauses (I) and (II) shall be
determined without regard to any
election made under subsection
(b)(2)(D), (b)(3)(D), or (g)(7) and
without regard to subparagraph (A)(ii).
(ii) Limitation.--The bonus
depreciation amount for any taxable
year shall not exceed the lesser of--
(I) 50 percent of the minimum
tax credit under section 53(b)
for the first taxable year
ending after December 31, 2013,
or
(II) the minimum tax credit
under section 53(b) for such
taxable year determined by
taking into account only the
adjusted net minimum tax for
taxable years ending before
January 1, 2014 (determined by
treating credits as allowed on
a first-in, first-out basis).
(iii) Aggregation rule.--All
corporations which are treated as a
single employer under section 52(a)
shall be treated--
(I) as 1 taxpayer for
purposes of this paragraph, and
(II) as having elected the
application of this paragraph
if any such corporation so
elects.
(C) Credit refundable.--For purposes of
section 6401(b), the aggregate increase in the
credits allowable under part IV of subchapter A
for any taxable year resulting from the
application of this paragraph shall be treated
as allowed under subpart C of such part (and
not any other subpart).
(D) Other rules.--
(i) Election.--Any election under
this paragraph may be revoked only with
the consent of the Secretary.
(ii) Partnerships with electing
partners.--In the case of a corporation
which is a partner in a partnership and
which makes an election under
subparagraph (A) for the taxable year,
for purposes of determining such
corporation's distributive share of
partnership items under section 702 for
such taxable year--
(I) paragraphs (1)(A),
(2)(D)(i), and (5)(A)(i) shall
not apply, and
(II) the applicable
depreciation method used under
this section with respect to
any qualified property shall be
the straight line method.
(iii) Certain partnerships.--In the
case of a partnership in which more
than 50 percent of the capital and
profits interests are owned (directly
or indirectly) at all times during the
taxable year by 1 corporation (or by
corporations treated as 1 taxpayer
under subparagraph (B)(iii)), each
partner shall compute its bonus
depreciation amount under clause (i) of
subparagraph (B) by taking into account
its distributive share of the amounts
determined by the partnership under
subclauses (I) and (II) of such clause
for the taxable year of the partnership
ending with or within the taxable year
of the partner.
(5) Special rules for trees and vines bearing fruits
and nuts.--
(A) In general.--In the case of any tree or
vine bearing fruits or nuts which is planted,
or is grafted to a plant that has already been
planted, by the taxpayer in the ordinary course
of the taxpayer's farming business (as defined
in section 263A(e)(4))--
(i) a depreciation deduction equal to
50 percent of the adjusted basis of
such tree or vine shall be allowed
under section 167(a) for the taxable
year in which such tree or vine is so
planted or grafted, and
(ii) the adjusted basis of such tree
or vine shall be reduced by the amount
of such deduction.
(B) Election out.--If a taxpayer makes an
election under this subparagraph for any
taxable year, this paragraph shall not apply to
any tree or vine planted or grafted during such
taxable year. An election under this
subparagraph may be revoked only with the
consent of the Secretary.
(C) Additional depreciation may be claimed
only once.--If this paragraph applies to any
tree or vine, such tree or vine shall not be
treated as qualified property in the taxable
year in which placed in service.
(D) Coordination with election to accelerate
AMT credits.--If a corporation makes an
election under paragraph (4) for any taxable
year, the amount under paragraph (4)(B)(i)(I)
for such taxable year shall be increased by the
amount determined under subparagraph (A)(i) for
such taxable year.
(E) Deduction allowed in computing minimum
tax.--Rules similar to the rules of paragraph
(2)(E) shall apply for purposes of this
paragraph.
(6) Election out.--If a taxpayer makes an election
under this paragraph with respect to any class of
property for any taxable year, this subsection shall
not apply to all property in such class placed in
service (or, in the case of paragraph (5), planted or
grafted) during such taxable year. An election under
this paragraph may be revoked only with the consent of
the Secretary.
(l) Special Allowance for Second Generation Biofuel Plant
Property.--
(1) * * *
* * * * * * *
(5) Allowance against alternative minimum tax.--For
purposes of this subsection, rules similar to the rules
of [section 168(k)(2)(G)] section 168(k)(2)(E) shall
apply.
* * * * * * *
PART IX--ITEMS NOT DEDUCTIBLE
* * * * * * *
SEC. 263A. CAPITALIZATION AND INCLUSION IN INVENTORY COSTS OF CERTAIN
EXPENSES.
(a) * * *
* * * * * * *
(c) General Exceptions.--
(1) * * *
* * * * * * *
(7) Coordination with section 168(k)(5).-- This
section shall not apply to any amount allowable as a
deduction by reason of section 168(k)(5) (relating to
special rules for trees and vines bearing fruits and
nuts).
* * * * * * *
Subchapter E--Accounting Periods and Methods of Accounting
* * * * * * *
PART II--METHODS OF ACCOUNTING
* * * * * * *
Subpart B--Taxable Year for Which Items of Gross Income Included
* * * * * * *
SEC. 460. SPECIAL RULES FOR LONG-TERM CONTRACTS.
(a) * * *
* * * * * * *
(c) Allocation of Costs to Contract.--
(1) * * *
* * * * * * *
(6) Special rule for allocation of bonus depreciation
with respect to certain property.--
(A) * * *
(B) Qualified property.--For purposes of this
paragraph, the term ``qualified property''
means property described in section 168(k)(2)
[which--] which has a recovery period of 7
years or less.
[(i) has a recovery period of 7 years
or less, and
[(ii) is placed in service after
December 31, 2009, and before January
1, 2011 (January 1, 2012, in the case
of property described in section
168(k)(2)(B)), or after December 31,
2012, and before January 1, 2014
(January 1, 2015, in the case of
property described in section
168(k)(2)(B)).]
* * * * * * *
VII. DISSENTING VIEWS
The six bills approved by the Republicans at the markup
would add $304 billion to the deficit. Combined with the $310
billion that the six bills approved by Republicans on the
Committee in April added to the deficit, Republicans have added
$614 billion to the deficit in two short months--and there does
not appear to be an end in sight. Even though some of these
bills were introduced individually with some bipartisan
support, the opposition to these bills was based on the
position that these tax provisions should not be made permanent
by adding to the deficit without any revenue offset. This bill
alone would add $287 billion to the deficit.
To put the combined cost ($614 billion) into context, it is
25 percent more than the entire projected federal deficit this
year and $86 billion more than total non-defense domestic
discretionary spending (e.g., medical research, education,
veterans' pensions and health care, transportation, etc.) will
be in 2014. It is almost seven times what we spend annually on
education, job training, and social services. It is ten times
more than we spend on veterans. And, it is eleven times more
than we spend on medical research and public health.
More specifically, we opposed H.R. 4718 because it would
make permanent a provision that was designed to be temporary.
As stated by the Congressional Research Service (CRS) in Bonus
Depreciation: Economic and Budgetary Issues (March 24, 2014),
bonus depreciation ``was enacted for a specific, short-term
purpose: to provide an economic stimulus during the
recession.'' CRS explained: ``A temporary investment subsidy
was expected to be more effective than a permanent one for
short-term stimulus, encouraging firms to invest while the
benefit was in place. Its temporary nature is critical to its
effectiveness.'' (Emphasis added.)
The last decade highlights the temporary nature of this
policy. It was put in place during the recession at the early
part of the last decade before being allowed to expire in 2005
as the economy improved. In 2008, as a new, deeper recession
took hold, the policy was put in place again.
We found it hypocritical that the Republicans would make
permanent a provision that was repealed in Chairman Camp's Tax
Reform Act of 2014 discussion draft (the ``Republican tax
reform plan''). CRS also stated that ``moving to permanent
bonus depreciation is inconsistent with tax reform proposals
made by . . . Chairman Camp's proposal.'' Indeed, in the Ways
and Means Committee Majority Tax Staff summary of the
Republican tax reform plan, the summary of the accelerated cost
recovery reform system states: ``The provision also would
repeal the following special depreciation provisions: bonus
depreciation . . .'' (Emphasis added.)
We also found it hypocritical that, four months ago,
Republicans let emergency unemployment insurance expire for
more than 1.3 million Americans by arguing that an adequate
offset had yet to be proposed. In early April, the Senate came
to a bipartisan agreement on an offset after months of
painstaking negotiations. Yet, House Republicans still refuse
to act. We also found it irrational that Republicans would make
permanent a temporary, stimulus provision for businesses and
let emergency unemployment insurance for individuals (another
temporary, stimulus provision) expire.
Finally, we also opposed the manner in which Republicans
were proceeding--selecting 10 to make permanent without any
offset from the approximately 60 tax provisions that expired
last year. This approach was both fiscally irresponsible and
fundamentally hypocritical.
The consideration of this bill should have been part of the
consideration of all the expired tax provisions commonly
referred to as ``tax extenders.'' The Republicans did not take
up other tax extenders that also are important to Democratic
Committee Members. Left to an uncertain fate are provisions
like the Work Opportunity Tax Credit, the New Markets Tax
Credit, and the renewable energy tax credits, as well as the
long-term status of the Earned Income Tax Credit, the Child Tax
Credit, and the American Opportunity Tax Credit.
Sincerely,
Sander M. Levin,
Ranking Member.
[all]