On September 8, 2010, President Obama announced as part of the new stimulus proposal an extension and expansion of bonus depreciation rules enacted in the 2008 and 2009 stimulus packages. The provisions of the proposal include "extending the 50% bonus depreciation deduction for qualifying investment purchases made before September 8, 2010 and increasing it to 100% for purchases made between September 8, 2010 and December 31, 2011." The 2008 stimulus package allowed small businesses to write off value of investment up to $250,000, while large businesses could write off 50%. The American Recovery and Reinvestment Act of 2009 renewed the 50% deduction for investment made in 2009. The President's 2011 Budget proposes extending it for 2010. This is the recent history of tax credits to promote business investment.
What has transpired in the recent recession with regard to the private sector stock of equipment and software? As chart 1 shows, the real net stock of equipment and software spending fell in 2009, the first such occurrence since the Great Depression, excluding the war-related event. The new proposal under consideration would enable businesses to deduct immediately all of the costs of qualifying investment purchases as opposed to the 50% provision of the 2008 and 2009 packages. In other words, the risk-reward evaluation of new business projects would be different and could possibly raise the capital stock sooner than without these provisions.
