Obama to Promote Business Deduction to Spur Investment

President Barack Obama will make the case that his proposal to let companies take immediate tax deductions for the full cost of new equipment will help the economy grow and create jobs by encouraging about $50 billion in new investments through 2011.

Four days before midterm elections that will determine control of Congress, the president is scheduled to promote the plan today in remarks at Stromberg Metal Works Inc., in the Washington suburb of Beltsville, Maryland. The company, which employs about 400 people, would like to hire more workers and is an example of a business that may benefit from the deduction, according to administration officials who briefed reporters yesterday.

A report released by the Treasury Department today said the plan will accelerate $150 billion in tax breaks to 2 million businesses by letting companies write off the full cost of qualified capital expenditures in the year they are made, rather than deducting the costs over several years.

The total cost of the proposal is estimated to be about $30 billion over 10 years because businesses that take the full deduction up-front wouldn’t get the smaller write-offs they would have received in years to come.

The proposal, which requires congressional approval, would be the largest temporary investment incentive ever, said an administration official who outlined the plan to reporters on condition of anonymity.

Last year’s federal stimulus plan included a similar provision that let companies more quickly write off 50 percent of capital investment costs. Obama last month signed a measure extending that provision through the end of this year.

Tax Savings

Together, the tax breaks enacted last month and the proposal for 2011 would provide about $200 billion in tax savings for companies through 2011, according to the Treasury report.

The proposal is designed to encourage companies to boost the economy by spending some of the record $1.84 trillion in cash they had on hand at the end of the first quarter, up from $1.43 trillion at the start of 2009.

Ed Kleinbard, a former staff director at Congress’s Joint Committee on Taxation, said providing immediate deductions for the full cost of expenses may encourage companies to game the system by borrowing money for equipment purchases just to get the tax benefits.

To contact the reporter on this story: Kate Andersen Brower in Washington at Kandersen7@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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