Expensing and Interest in the GOP Blueprint: Good Deal? Good Idea?

Abstract

November’s election thrust to the fore the tax reform Blueprint released last June by House GOP leaders. One of the plan’s key features, which has received surprisingly little attention, is its treatment of business investment. Outlays for plant, equipment and other business assets would be immediately deductible, rather than depreciated over time, while interest costs would be deductible only to the extent of interest income. This plan to replace net interest deductions with expensing of capital outlays is likely to hurt most businesses — some significantly — and so is likely to face a growing chorus of objections in coming months as this becomes clear to business leaders. Moreover, claims made about this part of the Blueprint’s positive impact on the economy — that it will reduce distortion and encourage investment — are subject to significant caveats and are, in some cases, contradicted by the conceptual understructure of the plan itself.