The tax code is so complicated and indefinite that the intended impact of tax legislation to increase or stimulate capital investment for a short time is dissipated in complexity.

If you buy capital equipment in 2008 you can ‘elect’ under the 179 provision to deduct the cost in one year instead of five. But this is limited to $250,000 and it is rescinded if your total capital expenditures exceed $800,000. So if you have spent just under $800,000 on capital equipment this capital stimulus package actually discourages you from buying capital equipment. Some stimulus.

Furthermore the additional deduction can apply against income but it can not be applied against a loss to increase that loss. I am sure there is some logic to that provision; I just can not figure it out.

The 179 election expires or is reduced in 2009 but some expect it to be ‘renewed’.There is also a ‘168’ election that allows 50% depreciation in the first year, and it can be applied to a loss.If one expects future tax rates to go up one may logically decide to forgo the ‘179’election to get the bigger tax ‘bang’ later at higher rates. If you think business is about to be bad you may also want to take the longer depreciation to be able to add it to possible future losses.

This one tax rule is one of so many that even the professionals struggle to keep up. My accountant said there were 6 major tax bills passed in 2008 alone. Many are temporary, seeking only short term stimulation. The tax ‘election’ decision is often made months after the purchase which means it has little or no impact on the purchase.

In my judgment businesses will buy equipment if it makes economic sense and will generally ignore the tax consequences. At best it may only affect the timing of the purchase, and it may only be by a few months.

The best stimulus to increase jobs is a simple, easy to understand, large cut in the tax rates on all business, large and small. Of course this is the opposite of the class warfare rhetoric that has permeated the campaigns and Congress.

The manipulative efforts to target very specific business behaviors is so complicated that they have no impact on very many business’s investment plans. It just wastes time and complicates the accounting function and tax returns.

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