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February 24, 2020

Is A Fight Over Making Full Expensing Permanent Looming?

Earlier this month, Sen. Pat Toomey (R-Penn.) introduced S. 3296, the Accelerate Long-Term Investment Growth Now (ALIGN ACT), a bill that would make full expensing permanent. As Connecting the Dots readers will recall, the 2017 federal tax reform bill signed into law by President Donald Trump included full expensing, which reduces companies’ after tax costs by providing a 100 percent deduction for the purchase of equipment and machinery.

Under the bill, however, beginning on January 1, 2023 bonus depreciation will begin to phase out, which will make it more expensive for manufacturers to invest.

The Toomey bill’s introduction came shortly after the Trump administration released its fiscal year 2021 budget. In that budget, the administration seeks to permanently extend temporary individual tax provisions from the 2017 tax reform bill, including the 20 percent pass-through deduction, but it does not propose to extend bonus depreciation and would keep in place research and development amortization and the EBIT base for interest expenses. (Click here to read the administration’s full proposal regarding tax receipts for fiscal year 2021.) As Politico reported last week, supporters of the expensing provision noted this absence and also are paying attention to statements from the U.S. Department of the Treasury about this matter.

In recent testimony before the U.S. Senate Finance Committee, for example, Treasury Secretary Steven Mnuchin did not point to full expensing and the corporate tax cut as helping the country’s economic growth. (The secretary did mention the deduction for pass-through income and the new territorial system and tax relief for the middle-class were driving growth.) After the hearing Secretary Mnuchin also said that, while the Trump administration likes full expensing, it will have to “make some tough calls about what made the cut in the budget because of deficit concerns.”

Stay tuned to Connecting the Dots for more information about how the debate of extending bonus depreciation proceeds in Congress.