This week, Senate Finance Chairman Max Baucus (D-Mont.) released three “staff discussion” drafts for reforming the international tax system, administering the tax code, and cost recovery provisions. Chairman Baucus suggested that the outlines were intended to be a starting point rather than a final draft. The changes proposed in the cost recovery draft would generate about as much money during the next decade as repealing accelerated depreciation, according to Finance Committee staff.
A 2011 estimate from the Joint Committee on Taxation said that such a change would generate $724 billion over a decade. Some of the significant proposals in the staff discussion draft focusing on reforms to the cost recovery and tax accounting rules include:
Depreciation of Tangible Assets
- Replace the current rules with a system that better approximates economic depreciation based on estimates from the Congressional Budget Office.
- Reduce the number of major depreciation rates from more than 40 to 5.
- Eliminate the need for businesses to calculate depreciation separately for each of their assets, other than real property.
- Require businesses to deduct the cost of R&D, natural resource extraction, and 50 percent of advertising expenses over 5 years.
- Repeal LIFO accounting and the like-kind exchange rules.
- Repeal the completed contract method of accounting, except for small construction contracts (less than $10m).
- Permanently increase Section 179 expensing to $1 million and expand the definition of qualifying expenses.
- Allow all companies with gross receipts under $10 million to use cash accounting and expense inventory costs.