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Another Voice: Tax reform should not overturn depreciation policy

By Kevin Dempsey

As we head into the presidential election, it has never been clearer that our country is divided on numerous issues. Despite all the divisiveness, one area where there is enormous consensus is the importance of the American manufacturing and farming sectors.

These industries employ millions of Americans across the country and are particularly important here in New York. Our elected officials must continue to support policies that allow businesses to invest in critical machinery and equipment.

Investments in the manufacturing and farming industries are extremely expensive. Equipment is more advanced and complex than ever, raising the cost of replacing outdated machinery. American businesses have to make these investments in order to keep pace with rapidly growing global competition. But making these investments can be difficult, even impossible for some companies, if they are expected to make purchases without any cost recovery or tax relief.

For more than 60 years American businesses have used accelerated depreciation to take on these critical investments. Since the Tax Reform Act of 1986, the policy has been in place as the Modified Accelerated Cost Recovery System (MACRS), where it has ensured companies can afford to finance advanced technology.

The MACRS ensures cost recovery through a system that allows businesses to take a higher depreciation expense in the early years of a new investment in order to rapidly recover the cost of investment.

Accelerated depreciation has been a lifeline to manufacturers and farmers during these uncertain times. It has allowed companies to continue to invest in future technology despite the growing sticker price of equipment.

Tax reform has been on the agenda for years, with the 1986 law representing the last major successful reform. The global economic landscape has changed dramatically in the last 30 years, and our national tax code certainly needs to be updated in kind with these developments. However, it is vital that lawmakers uphold policies that have proven to have a positive impact.

Accelerated depreciation protects jobs and makes American businesses more competitive in international markets. Eliminating or dramatically changing the policy would have an immediate and lasting negative effect on the American manufacturing and farming sectors.

As new leaders are sworn in to office next year, we must hold them accountable to positive reform, and ensure they understand the value of policies like accelerated depreciation.

Kevin Dempsey is senior vice president, public policy, and general counsel for the American Iron and Steel Institute. He wrote this on behalf of the Cost Recovery Advances the Nation’s Economy coalition.

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