[Congressional Record Volume 141, Number 38 (Wednesday, March 1, 1995)]
[House]
[Page H2475]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                         NEUTRAL COST RECOVERY

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Michigan [Mr. Smith] is recognized for 5 minutes.
  Mr. SMITH of Michigan. Madam Speaker, the great 18th century 
political economist David Hume warned legislators against passing any 
legislation which impedes commerce and industry. Unfortunately, our 
current laws regarding taxation of capital, that is, the machines and 
equipment and facilities and buildings used by our Nation's businesses, 
are exactly what David Hume was talking about.
  As a result, we all have lower wages, we have less efficient tools, 
we have fewer factories, and we have trailed our competitors around the 
world in productivity growth.
  I am the sponsor of a vital piece of the Contract With America that 
will solve this problem. Estimates by economic researchers are that it 
will boost the growth of our gross domestic product by 25 percent, that 
it will create more than 2.5 million jobs, and will increase the 
average worker's wages by more than $4,500 per year.

                              {time}  2145

  The name that is given to my bill is not as catchy as most. It is 
neutral cost recovery. This explains what the bill does from a 
technical tax standpoint, but from an economic effect standpoint it 
should be called green thunder. It is what Steven Entin, resident 
scholar at the Institute for Research on the Economics of Taxation, 
called, and I quote, a win/win proposal that deserves prompt passage, 
end of quote.
  As we work ardently on fulfilling the Contract with America, we 
should keep in mind that nearly three quarters of the contract's 
increase in economic activity, our country's gross domestic product, 
comes from neutral cost recovery. While it may not be as well known as 
the rest of the contract, and it may not have the first blush appeal, 
it is crucial to our Nation's economic growth.
  What is this neutral cost recovery which will do so much for economic 
growth? It is a change in the way we tax capital, the way we tax 
buildings and equipment that we work in and with. Under my bill 
businesses would be able to deduct the first $25,000 of investment in 
machines and buildings in the first year of purchase and index the 
depreciation of the rest of the value for inflation. It would allow 
businesses to continue with a current tax treatment or to choose the 
neutral cost recovery method. When choosing neutral cost recovery, 
businesses that currently choose the 200 percent declining balance 
method could shift to a 150 percent declining balance in return for 
being able to match depreciation for tax purposes more closely with 
economic depreciation of the assets.
  Neutral cost recovery is not arbitrary. Unlike what we have tried to 
do in past years, it allows all businesses to deduct the full present 
value of the purchase of a capital asset regardless of the years of 
life. Unlike current law, it would not be biased and penalize a 
business for buying new machinery or equipment, and it would not bias 
against the construction of new buildings and factories.
  What does this mean to you? If you are a wage earner, it means you 
will have better tools to work with, better and newer buildings to work 
in, higher wages and greater job opportunities. If you are a small 
business owner, you will be able to invest in a new building or new 
equipment and get a deduction which effectively allows you to treat 
those purchases like any other business cost. If you are a decision 
maker in a large corporation, you will be able to expand your company 
and meet the foreign competition on a more equal tax footing. This 
happens because neutral cost recovery reduces the cost of that 
machinery, that equipment, those facilities, by an estimated 16 
percent.
  According to the National Academy of Sciences, private investment in 
plant and equipment in the United States has fallen to less than 10 
percent of gross domestic product, and most of that goes to replace the 
old capital rather than equipment that embodies entirely new 
capabilities, the state of the art equipment. Our low rate of 
investment can be increased quickly through expensing and the use of 
neutral cost recovery.
  Madam Speaker, our future and that of our children depend upon the 
seed corn which we are setting aside today, the quality of tools and 
equipment that we are buying in our investment in factories. The 
provision in the Contract with America that I am proud to sponsor, 
neutral cost recovery, will provide us and our children and 
grandchildren with a stronger, wealthier America.


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