"Bonus" Depreciation Tax Break Gains Favor in Congress

WASHINGTONFeb 2 (Reuters) - Extending a business investment tax break gained steam in the Congress on Thursday as negotiators voiced support for including it in a bill that also would continue a tax cut for 160 million workers. The 100 percent "bonus" depreciation U.S. companies enjoyed in 2011 would scale back to 50 percent this year unless Congress votes to maintain last year's level. This tax break lets companies immediately take the full write-off for purchases of equipment and other business-related investments, instead of stretching it out over a longer period.

Legislation to extend a payroll tax cut through 2012, which passed the House of Representatives in December, would have continued the 100 percent bonus depreciation for businesses for another year. But that legislation was put aside after Congress was only able to agree on a two-month payroll tax-cut extension, that expires on Feb. 29.

During a meeting of lawmakers assigned to work out a new House-Senate compromise on the payroll tax cut, as well as extending unemployment benefits and averting a pay cut for doctors treating Medicare patients, House Ways and Means Committee Chairman Dave Camp pushed to include the 100 percent bonus depreciation. Camp, a Republican, got a warm reception from Senate Finance Committee Chairman Max Baucus, a Democrat, who said, "I think 100% expensing makes sense" through 2012.

Democratic Representative Chris Van Hollen joined in, saying, "There's a very strong argument for bonus depreciation, especially as the economy remains in a very fragile state." Van Hollen warned, however, that the lower revenues resulting from the business tax break should not be offset in a way that hurts the economy "in other places."

With the Feb. 29 deadline nearing, House and Senate negotiators on the payroll tax bill have yet to come to agreement on the most difficult part of their talks - how to cover the approximately $170 billion cost of the legislation.

Democrats are resisting Republican demands for significantly scaling back unemployment benefits amid an 8.5 percent jobless rate. Republicans also are insisting on using the legislation to kill some new environmental regulations that the Obama administration wants to finalize. As a result, there is no certainty that Congress will be able to work out a full year payroll tax cut extension by Feb. 29. If not, it might have to resort to trying to pass another stop-gap measure.
Source: Thomson Reuters News & Insight 2/2/2012