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View Count: 87 |  Publish Date: November 21, 2013
Baucus Would Cut Corporate Rate With Slower Write-Offs
By Richard Rubin - 2013-11-21T17:00:00Z
Senate Finance Chairman Max Baucusproposed requiring companies to take deductions for many capitalasset purchases over a longer period, showing for the first timethe tradeoffs in his plan to lower the corporate tax rate.
Baucus’s proposal would replace the system known asaccelerated depreciation with simpler rules. Some businessspending that can now be immediately deducted -- research,advertising and oil and gas extraction costs -- would be spreadover several years for tax purposes.
“America today is using a bloated tax code that was builtfor businesses close to 30 years ago,” Baucus said today in astatement. “The code is completely outdated and acting as abrake on economic growth.”
The proposals are part of the third discussion draft Baucusreleased this week as part of his attempt to build momentum forthe biggest tax code changes since 1986. That work has beenstymied in part by a partisan divide over whether the governmentshould collect more money.
The changes proposed today would generate about as muchmoney during the next decade as repealing accelerateddepreciation, according to Finance Committee staff. A 2011estimate from the Joint Committee on Taxation said that such achange would generate $724 billion over a decade.
That’s enough to finance a corporate rate cut of severalpercentage points, though final estimates aren’t available.Baucus has said he wants to see the U.S. corporate tax rate, nowat 35 percent, reduced to less than 30 percent. Earnings Boost
For public companies, the depreciation change combined withthe corporate rate cut would cause an immediate one-time boostto earnings. That’s because, for financial statement purposes,changes in the timing of tax deductions don’t affect earnings.
Under current depreciation rules, the cost of each asset isdeducted over a set period. The changed system, modeled in parton rules in Canada, would group assets into four pools designedto better reflect the assets’ economic life.
Within each pool, companies could deduct a set percentageof the value each year -- 38 percent, 18 percent, 12 percent and5 percent. Real property would be depreciable over 43 years.
The proposal would repeal last-in, first-out accounting,adopting an administration proposal opposed by wholesalers andoil and gas companies.
Costs related to extracting natural resources andconducting business research would be deducted over five years.Advertising expenses could be deducted 50 percent in the firstyear and the rest over five years, a change that advertisers andbroadcasters have been anticipating and fighting.
For small businesses, Baucus’s proposal would make iteasier to use cash accounting and expense $1 million in capitalpurchases.
To contact the reporter on this story:Richard Rubin in Washington at rrubin12@bloomberg.net
To contact the editor responsible for this story:Jodi Schneider at jschneider50@bloomberg.net

Time: 18:48  |  News Code: 349023  |  Site: bloomberg
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