Editor's Note: This column was authored by Travis Nix.
With about 8.4 percent of Americans unemployed, our country needs real relief. March’s CARES Act did a fine job of keeping the economy on life support, but now Americans need an economic recovery package that actually creates jobs. And that’s certainly not going to come in the form of the $3 trillion bill that House Speaker Nancy Pelosi recently demanded.
Yet there is another bill that could truly lend a hand to hard-working Americans.
Aptly titled the CREATE JOBS Act, the proposal introduced by Senators Ted Cruz (R-TX) and Martha McSally (R-AZ) would stimulate the economy by increasing job-creating investments that would also cause wages to rise. The projected growth is estimated to be some 802,000 jobs, while only reducing tax revenues by $419 billion over the next 10 years.
The act has three main job-creating provisions. The first is permanent full expensing, which allows businesses to immediately write off the cost of their capital investments from their income taxes—instead of deducting these costs over a number of years using cumbersome depreciation schedules. Full expensing reduces the cost of investing in productive assets, such as machinery, which creates jobs and increases wages.
Temporary full expensing until 2022 for short-lived assets was included as part of the 2017 tax law, but, to increase the economic benefits, it needs to be made permanent. Large purchases of machinery and equipment often take years of planning, and the uncertainty of the pandemic and the effect of the shutdown on business cash flow means that many businesses have been forced to cancel their investment plans. Many will no longer invest until full expensing expires and, by then, the cost of investing might be too high if they have to depreciate their investments over a large number of years.
This would be a big loss for the American worker. The unemployed will be left without new job opportunities and the employed will lose out on the raises they would have received.
But permanent full expensing would give workers the boost they need. The Tax Foundation estimates that this provision of Sens. Cruz and McSally’s bill would lead to the creation of 180,000 new jobs and raise wages by nearly 1 percent. This is the kind of economic recovery we absolutely must have right now.
The second and most important provision of the bill will have the greatest economic effects by extending the benefits of full expensing to structures using the neutral cost recovery system. Structures, such as houses and storefronts, are the main type of investment that’s not eligible for full expensing under the 2017 tax law. Residential and nonresidential buildings currently face depreciation schedules of 27.5 and 39 years, respectively. The CREATE JOBS Act would index the depreciation schedules to inflation as well as the time value of money, which reduces the cost of investing in expensive structures and provides the same economic benefits as full expensing.
This provision of the CREATE JOBS Act would create an additional 572,000 full-time jobs and raise wages by 2.4 percent over the long run, making it the most important provision of any potential stimulus package.
A neutral cost recovery system would also significantly simplify the tax code and make it fairer. For years, politicians have been handing out special tax provisions to their favorite special interests. NASCAR stadiums, for example, have historically received a seven year depreciation schedule instead of the traditional 39 year schedule for business structures. These types of special interest handouts make the tax code less economically efficient by encouraging investors to invest in assets that receive a favorable tax treatment instead of the investment that is the most economically productive. A neutral cost recovery system would even the playing field by giving all structures the benefits of full expensing, providing a big economic boost and eliminating any justification for some of these special interest tax subsidies.
The bill, too, would continue to allow businesses to keep on deducting the full cost of their R&D expenses immediately. Starting in 2022, businesses will have to write off the cost of their R&D expenses over five years—instead of within the year they’re incurred. This raises the cost of research, an increasingly important sector of the economy. This upcoming expense for businesses who invest heavily in R&D will make them slow to rehire their employees or reduce these investments since this is another cost they’ll soon incur.
Canceling the amortization of R&D expenses through the CREATE JOBS Act would create 47,000 jobs and save workers from potential layoffs.
Pelosi and the rest of the gang want to pass legislation that will do little to help us out in the long-run. But we don’t need short-term fixes that will leave generations with even more of a mess to clean up. What we need now is hundreds of thousands of new jobs, raised wages, and some hope that things will be OK. To that end, let’s hope that our legislators wise up and see the CREATE JOBS Act through.
Travis Nix (@tnix113) is a Young Voices contributor and a student of tax law at Georgetown Law. His tax and budget commentary has been featured in Fox News, National Review, the Washington Examiner and the Chicago Tribune, among other publications.