Wyden Proposes Simplifying Capital Depreciation Rules

Proposal Would Put the Tax Code to Work for Small Companies That Rely on Machinery and Equipment to Grow Their Business

WASHINGTON – Senate Finance Committee Ranking Member Ron Wyden, D-Ore., today offered a discussion draft of legislation to simplify one of the most complex areas of the tax code – capital depreciation rules – making it easier for businesses to invest in everything from trucks to computers.

Investing in capital is critical for companies looking to grow their business and serves as key driver for overall economic development with more than $40 trillion in capital assets in the U.S. economy. Currently companies have to navigate hefty costs and complexity imposed by the antiquated tax code every time they want to buy or sell a piece of equipment.   Small businesses are at the greatest disadvantage as they invest in these basic items to run their companies when needed, rather than when it makes the most sense from a tax perspective.   Additionally the Congressional Budget Office (CBO) notes that existing rules, written in the 1980’s, create bias between different industries and hit high-tech firms the hardest. 

Addressing this unfair complexity, the Wyden proposal would condense the 100 existing depreciation rules into 6 “pools”, while maintaining accelerated depreciation.  Additionally it simplifies the amount of math a business has to do, eliminating unnecessary rules requiring three complex calculations per asset every year.  It would also significantly simplify and expand tax-free reinvestment rules to help business owners focus on growing their operations.

“You shouldn’t need a PhD in advanced mathematics to navigate the tax code when deciding to invest in a new computer or pick-up truck,” said Wyden. “This proposal addresses the lopsided rules and complexity, putting the tax code to work for small businesses and growing industries.”

The draft would also modernize the tax rules to remove existing barriers for investment in high-tech industries and infrastructure.  

The discussion draft is a detailed, but not final, document that outlines principles and concepts. It is being circulated to interest groups, members of Congress, federal officials and others for review and comment. The responses will be reviewed and, if appropriate, be incorporated into legislation. Please email comments on the proposal to Cost_Recovery@Finance.Senate.gov.

A one-page summary of the legislative proposal can be found here. A longer summary can be found here. The discussion draft text can be found here.

A JCT technical explanation can be found here. A JCT memo on pool rates with a revenue estimate can be found here.

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