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Tyler Cowen

How a Good Tax Reform Goes Bad

"Full expensing" is a potent incentive for businesses, until it becomes crony capitalism.
This plan could easily sour.

This plan could easily sour.

Photographer: George Frey/Getty Images
Corrected

As congressional Republicans turn their attention to tax reform this fall, one of the biggest debates will concern “full expensing” for corporations. There are many proposals, but the common core of this idea is to offer tax breaks only if a business buys something, or in essence makes a new investment.

The good news is that full expensing can be a more potent incentive than a cut in the corporate income tax rate, which also confers a benefit on investments already in place. The bad news is that full expensing, in part because of its very potency, may boost crony capitalism in our tax code.