Yesterday I read where Obama is considering allowing corporations to write off all investments in plants in 2011 in one year---basically treat those assets on a cash basis---for tax purposes. The article described this as a huge cut of corporate taxes. Of course that is not true.

What this will do is delay corporate taxes. The corporations will be able to write down assets they purchase in one year instead of 7 or 30 as is traditionally done now. This will dramatically reduce their income for tax purposes in 2011 but will raise their income for subsequent years for tax purposes. It is sort of an unsecured, off balance sheet loan of taxes that normally would have been paid.

It is a good thing but it is not this huge help to corporations. We have the highest corporate tax rate in the Western World and no doubt the union leaders and democrats that run Obama like it that way. What Obama should do since his base will not allow to actually cut the rate is to expand this proposal to all years. What would then happen is that corporations that are growing and investing in their business could do so without as much cash tax outlay as they now have. The government would be saying “we are not going to collect tax from you so long as you invest at least as much money as you make every year in US assets for your business.”

Tax cuts for business?  Great idea!

Oh, wait.  Obama’s for it?  Bad idea!

Only obama’s not for tax cuts.

fred - 09 September 2010 08:22 AM

Only obama’s not for tax cuts.

Well, yes he is, Fred.  Try to keep up with the news.

http://www.npr.org/templates/story/story.php?storyId=129737076

Big Easy - 09 September 2010 08:28 AM

fred - 09 September 2010 08:22 AM

Only obama’s not for tax cuts.

Well, yes he is, Fred.  Try to keep up with the news.

http://www.npr.org/templates/story/story.php?storyId=129737076

Yes big, I’ve heard everything he “says”.. I’ve yet to see any real cuts.

Even NPR refers to his tax break “plan”..  Nothing has been done, only talk.

There should be across the board tax cuts not tax breaks. A tax break is… I have to do X in order to get the deduction/exemption/credit. A tax cut is… a cut.

Big Easy - 09 September 2010 08:28 AM

fred - 09 September 2010 08:22 AM

Only obama’s not for tax cuts.

Well, yes he is, Fred.  Try to keep up with the news.

http://www.npr.org/templates/story/story.php?storyId=129737076

Well no he is not. Perhaps reading comprehension is a problem here.

NPR says:

Obama called on Congress to permanently extend certain tax credits for companies, allow businesses to write off all spending on expansion and improvements and renew tax cuts for those who earn up to $250,000 a year. He also reiterated his opposition to continuing the Bush-era tax cuts for the highest-earning Americans, saying an extension would cost $700 billion over 10 years.

Basically saying Obama will extend some of tax cuts presently in place.

Now the accelerated business write off of assets I refer to and NPR mentions here is not a tax cut at all. It is simply a different way of treating depreciation for tax purposes that will result in a company paying less taxes in 2011 if they make capital asset purchases but more taxes in subsequent years. (I agree with doing this but I think it should be forever not just restricted to 2011.)

The Federal corporate tax rate in the US is 35%. Today a company might buy a $1 million piece of equipment and can write it off over 7 years. So they will expense (ignoring salvage value) $1 million/7=$142857.14 each of seven years against their income. If there income were $1 million they would then pay 35% of $1million minus $142857.14 or $300,000 in taxes per year for seven years.

What Obama is purposing is that the company in my example be allowed to write off the entire $1 million capital asset purchase in 2011 which would mean they would owe no taxes for 2011 ($1million in income minus $1 million in depreciation=0) but in 2012 and subsequent 5 years the company would pay tax on all $1 million in income ($350000) since they would have already expensed the entire purchase price of the asset.

A bunch of leftist spin masters are saying this is a tax cut by pointing to the reduced taxes corporations will pay in 2011 but it simply is not the truth.

We should say to all companies---go to a cash basis on asset purchases for tax purposes and you will not pay much tax here as long as you are growing and investing here. If Obama wants to make a real positive change he will do these two things:

1) allow write off on US assets at time of purchase
2) lower the corporate tax rate substantially from the 35%

I. B. Freeman - 09 September 2010 10:17 AM

Big Easy - 09 September 2010 08:28 AM

fred - 09 September 2010 08:22 AM

Only obama’s not for tax cuts.

Well, yes he is, Fred.  Try to keep up with the news.

http://www.npr.org/templates/story/story.php?storyId=129737076

Well no he is not. Perhaps reading comprehension is a problem here.

NPR says:

Obama called on Congress to permanently extend certain tax credits for companies, allow businesses to write off all spending on expansion and improvements and renew tax cuts for those who earn up to $250,000 a year. He also reiterated his opposition to continuing the Bush-era tax cuts for the highest-earning Americans, saying an extension would cost $700 billion over 10 years.

Basically saying Obama will extend some of tax cuts presently in place.

Now the accelerated business write off of assets I refer to and NPR mentions here is not a tax cut at all. It is simply a different way of treating depreciation for tax purposes that will result in a company paying less taxes in 2011 if they make capital asset purchases but more taxes in subsequent years. (I agree with doing this but I think it should be forever not just restricted to 2011.)

The Federal corporate tax rate in the US is 35%. Today a company might buy a $1 million piece of equipment and can write it off over 7 years. So they will expense (ignoring salvage value) $1 million/7=$142857.14 each of seven years against their income. If there income were $1 million they would then pay 35% of $1million minus $142857.14 or $300,000 in taxes per year for seven years.

What Obama is purposing is that the company in my example be allowed to write off the entire $1 million capital asset purchase in 2011 which would mean they would owe no taxes for 2011 ($1million in income minus $1 million in depreciation=0) but in 2012 and subsequent 5 years the company would pay tax on all $1 million in income ($350000) since they would have already expensed the entire purchase price of the asset.

A bunch of leftist spin masters are saying this is a tax cut by pointing to the reduced taxes corporations will pay in 2011 but it simply is not the truth.

We should say to all companies---go to a cash basis on asset purchases for tax purposes and you will not pay much tax here as long as you are growing and investing here. If Obama wants to make a real positive change he will do these two things:

1) allow write off on US assets at time of purchase
2) lower the corporate tax rate substantially from the 35%

Accelerated depreciation has always been regarded as highly desirable by business.  Technically it’s not a tax cut, but it certainly is a tax incentive that promotes continuing investment.

Big Easy - 09 September 2010 10:32 AM

I. B. Freeman - 09 September 2010 10:17 AM

Big Easy - 09 September 2010 08:28 AM

fred - 09 September 2010 08:22 AM

Only obama’s not for tax cuts.

Well, yes he is, Fred.  Try to keep up with the news.

http://www.npr.org/templates/story/story.php?storyId=129737076

Well no he is not. Perhaps reading comprehension is a problem here.

NPR says:

Obama called on Congress to permanently extend certain tax credits for companies, allow businesses to write off all spending on expansion and improvements and renew tax cuts for those who earn up to $250,000 a year. He also reiterated his opposition to continuing the Bush-era tax cuts for the highest-earning Americans, saying an extension would cost $700 billion over 10 years.

Basically saying Obama will extend some of tax cuts presently in place.

Now the accelerated business write off of assets I refer to and NPR mentions here is not a tax cut at all. It is simply a different way of treating depreciation for tax purposes that will result in a company paying less taxes in 2011 if they make capital asset purchases but more taxes in subsequent years. (I agree with doing this but I think it should be forever not just restricted to 2011.)

The Federal corporate tax rate in the US is 35%. Today a company might buy a $1 million piece of equipment and can write it off over 7 years. So they will expense (ignoring salvage value) $1 million/7=$142857.14 each of seven years against their income. If there income were $1 million they would then pay 35% of $1million minus $142857.14 or $300,000 in taxes per year for seven years.

What Obama is purposing is that the company in my example be allowed to write off the entire $1 million capital asset purchase in 2011 which would mean they would owe no taxes for 2011 ($1million in income minus $1 million in depreciation=0) but in 2012 and subsequent 5 years the company would pay tax on all $1 million in income ($350000) since they would have already expensed the entire purchase price of the asset.

A bunch of leftist spin masters are saying this is a tax cut by pointing to the reduced taxes corporations will pay in 2011 but it simply is not the truth.

We should say to all companies---go to a cash basis on asset purchases for tax purposes and you will not pay much tax here as long as you are growing and investing here. If Obama wants to make a real positive change he will do these two things:

1) allow write off on US assets at time of purchase
2) lower the corporate tax rate substantially from the 35%

Accelerated depreciation has always been regarded as highly desirable by business.  Technically it’s not a tax cut, but it certainly is a tax incentive that promotes continuing investment.

You are correct.

I say allow them to do it all the time. Why not? I guarantee you at the end of 5 years government revenues will be higher from the profits these investments create. All this is a cash flow tweak.