by Michael Schuyler
April 03, 2014
The Tax Foundation’s Taxes and Growth Model was used to estimate the long-run effects on the U.S. economy and federal revenue of enacting the capital cost recovery plan developed by Senate Finance Committee staff under the guidance of Senator Max Baucus. In general, the Baucus plan would slow the rate at which businesses could claim investment costs as expenses on their tax returns. Because of the time value of money, that would depress the present value of the write-offs and worsen the income tax’s bias against saving and investment. Consequently, new investments would be fewer than otherwise, the economy’s stock of capital would increase less rapidly, productivity would suffer, and economic growth would slow. Government revenue estimators would score the Baucus proposal as a big revenue raiser, which increases the odds that it will be seen as an option in current or future policy debates.