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To boost investments in new equipment and to increase productivity, Congress should allow firms to expense, for tax purposes, all the cost of machinery and equipment in the first year instead of having to depreciate the costs over a number of years.

An effective growth policy needs to be based in part on lower prices for equipment and machinery. One way to do this is to let firms expense all the cost of equipment in the first year instead of having to amortize the costs over a number of years. Allowing for the expensing of purchases of plant and equipment will reduce the after-tax price of investment, raising the level of domestic investment and the productivity of workers. While expensing allows a tax-paying entity to deduct the full cost of assets in the year of purchase, depreciation spreads these deductions over a federally-determined asset lifetime. This costs firms more because they have less capital in early years. Expensing will not only make the U.S. corporate tax code more globally competitive, it will spur higher productivity and wages.