John McCain has proposed to let corporations immediately deduct (or “expense”) the full cost of equipment and technology purchases, rather than deducting the costs over time. We analyzed this proposal several weeks ago and concluded that it would cost $745 billion over the next 10 years.
The McCain campaign and its top economic advisor, Dr. Douglas Holtz-Eakin, are now saying that this central provision of his corporate tax cut will cost taxpayers nothing. But the Congressional Budget Office, when led by Dr. Douglas Holtz-Eakin, reached the opposite conclusion.
The McCain campaign is claiming this measure is free because Treasury will lose money at first, then recoup it over time.
On its face, this doesn’t make a lot of sense. We all know $100 today is worth more than $10 a year for 10 years. And McCain is saying his plan will increase investment — how could that be if his plan has no cost to the Treasury?
In the past, Holtz-Eakin has recognized that expensing costs money. He signed a cost estimate for making permanent a provision of the 2002 stimulus package that allowed companies to expense 50% of their costs. The estimate is the last line on page 92 here, reproduced below:
This estimate shows that allowing companies to expense 50 percent of new investments would cost $440 billion over 10 years. And the costs are still very high, nearly $30 billion, 10 years after the provision is made permanent. McCain’s proposal for 100 percent expensing would be even more expensive.
If Holtz-Eakin was right then, how can he be right now?