[House Report 113-509]
[From the U.S. Government Publishing Office]


113th Congress  }                                           {    Report
                        HOUSE OF REPRESENTATIVES
 2d Session     }                                           {   113-509

======================================================================



 
             BONUS DEPRECIATION MODIFIED AND MADE PERMANENT

                                _______
                                

  July 3, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Camp, from the Committee on Ways and Means, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4718]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4718) to amend the Internal Revenue Code of 1986 to 
modify and make permanent bonus depreciation, having considered 
the same, report favorably thereon with an amendment and 
recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................5
          A. Purpose and Summary.................................     5
          B. Background and Need for Legislation.................     5
          C. Legislative History.................................     6
 II. EXPLANATION OF THE BILL..........................................6
          A. Bonus Depreciation Modified and Made Permanent (sec. 
              168(k) of the Code)................................     6
III. VOTES OF THE COMMITTEE..........................................13
 IV. BUDGET EFFECTS OF THE BILL......................................14
          A. Committee Estimate of Budgetary Effects.............    14
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    16
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    16
          D. Macroeconomic Impact Analysis.......................    19
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......26
          A. Committee Oversight Findings and Recommendations....    26
          B. Statement of General Performance Goals and 
              Objectives.........................................    26
          C. Information Relating to Unfunded Mandates...........    26
          D. Applicability of House Rule XXI 5(b)................    27
          E. Tax Complexity Analysis.............................    27
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    33
          G. Duplication of Federal Programs.....................    33
          H. Disclosure of Directed Rule Makings.................    33
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........33
VII. DISSENTING VIEWS................................................48

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. BONUS DEPRECIATION MODIFIED AND MADE PERMANENT.

  (a) Made Permanent; Inclusion of Qualified Retail Improvement 
Property.--Section 168(k)(2) of the Internal Revenue Code of 1986 is 
amended to read as follows:
          ``(2) Qualified property.--For purposes of this subsection--
                  ``(A) In general.--The term `qualified property' 
                means property--
                          ``(i)(I) to which this section applies which 
                        has a recovery period of 20 years or less,
                          ``(II) which is computer software (as defined 
                        in section 167(f)(1)(B)) for which a deduction 
                        is allowable under section 167(a) without 
                        regard to this subsection,
                          ``(III) which is water utility property,
                          ``(IV) which is qualified leasehold 
                        improvement property, or
                          ``(V) which is qualified retail improvement 
                        property, and
                          ``(ii) the original use of which commences 
                        with the taxpayer.
                  ``(B) Exception for alternative depreciation 
                property.--The term `qualified property' shall not 
                include any property to which the alternative 
                depreciation system under subsection (g) applies, 
                determined--
                          ``(i) without regard to paragraph (7) of 
                        subsection (g) (relating to election to have 
                        system apply), and
                          ``(ii) after application of section 280F(b) 
                        (relating to listed property with limited 
                        business use).
                  ``(C) Special rules.--
                          ``(i) Sale-leasebacks.--For purposes of 
                        clause (ii) and subparagraph (A)(ii), if 
                        property is--
                                  ``(I) originally placed in service by 
                                a person, and
                                  ``(II) sold and leased back by such 
                                person within 3 months after the date 
                                such property was originally placed in 
                                service,
                        such property shall be treated as originally 
                        placed in service not earlier than the date on 
                        which such property is used under the leaseback 
                        referred to in subclause (II).
                          ``(ii) Syndication.--For purposes of 
                        subparagraph (A)(ii), if--
                                  ``(I) property is originally placed 
                                in service by the lessor of such 
                                property,
                                  ``(II) such property is sold by such 
                                lessor or any subsequent purchaser 
                                within 3 months after the date such 
                                property was originally placed in 
                                service (or, in the case of multiple 
                                units of property subject to the same 
                                lease, within 3 months after the date 
                                the final unit is placed in service, so 
                                long as the period between the time the 
                                first unit is placed in service and the 
                                time the last unit is placed in service 
                                does not exceed 12 months), and
                                  ``(III) the user of such property 
                                after the last sale during such 3-month 
                                period remains the same as when such 
                                property was originally placed in 
                                service,
                        such property shall be treated as originally 
                        placed in service not earlier than the date of 
                        such last sale.
                  ``(D) Coordination with section 280f.--For purposes 
                of section 280F--
                          ``(i) Automobiles.--In the case of a 
                        passenger automobile (as defined in section 
                        280F(d)(5)) which is qualified property, the 
                        Secretary shall increase the limitation under 
                        section 280F(a)(1)(A)(i) by $8,000.
                          ``(ii) Listed property.--The deduction 
                        allowable under paragraph (1) shall be taken 
                        into account in computing any recapture amount 
                        under section 280F(b)(2).
                          ``(iii) Inflation adjustment.-- In the case 
                        of any taxable year beginning in a calendar 
                        year after 2014, the $8,000 amount in clause 
                        (i) shall be increased by an amount equal to--
                                  ``(I) such dollar amount, multiplied 
                                by
                                  ``(II) the automobile price inflation 
                                adjustment determined under section 
                                280F(d)(7)(B)(i) for the calendar year 
                                in which such taxable year begins by 
                                substituting `2013' for `1987' in 
                                subclause (II) thereof.
                         If any increase under the preceding sentence 
                        is not a multiple of $100, such increase shall 
                        be rounded to the nearest multiple of $100.
                  ``(E) Deduction allowed in computing minimum tax.--
                For purposes of determining alternative minimum taxable 
                income under section 55, the deduction under section 
                167 for qualified property shall be determined without 
                regard to any adjustment under section 56.''.
  (b) Expansion of Election to Accelerate Amt Credits in Lieu of Bonus 
Depreciation.--Section 168(k)(4) of such Code is amended to read as 
follows:
          ``(4) Election to accelerate amt credits in lieu of bonus 
        depreciation.--
                  ``(A) In general.--If a corporation elects to have 
                this paragraph apply for any taxable year--
                          ``(i) paragraphs (1)(A), (2)(D)(i), and 
                        (5)(A)(i) shall not apply for such taxable 
                        year,
                          ``(ii) the applicable depreciation method 
                        used under this section with respect to any 
                        qualified property shall be the straight line 
                        method, and
                          ``(iii) the limitation imposed by section 
                        53(c) for such taxable year shall be increased 
                        by the bonus depreciation amount which is 
                        determined for such taxable year under 
                        subparagraph (B).
                  ``(B) Bonus depreciation amount.--For purposes of 
                this paragraph--
                          ``(i) In general.--The bonus depreciation 
                        amount for any taxable year is an amount equal 
                        to 20 percent of the excess (if any) of--
                                  ``(I) the aggregate amount of 
                                depreciation which would be allowed 
                                under this section for qualified 
                                property placed in service by the 
                                taxpayer during such taxable year if 
                                paragraph (1) applied to all such 
                                property, over
                                  ``(II) the aggregate amount of 
                                depreciation which would be allowed 
                                under this section for qualified 
                                property placed in service by the 
                                taxpayer during such taxable year if 
                                paragraph (1) did not apply to any such 
                                property.
                        The aggregate amounts determined under 
                        subclauses (I) and (II) shall be determined 
                        without regard to any election made under 
                        subsection (b)(2)(D), (b)(3)(D), or (g)(7) and 
                        without regard to subparagraph (A)(ii).
                          ``(ii) Limitation.--The bonus depreciation 
                        amount for any taxable year shall not exceed 
                        the lesser of--
                                  ``(I) 50 percent of the minimum tax 
                                credit under section 53(b) for the 
                                first taxable year ending after 
                                December 31, 2013, or
                                  ``(II) the minimum tax credit under 
                                section 53(b) for such taxable year 
                                determined by taking into account only 
                                the adjusted net minimum tax for 
                                taxable years ending before January 1, 
                                2014 (determined by treating credits as 
                                allowed on a first-in, first-out 
                                basis).
                          ``(iii) Aggregation rule.--All corporations 
                        which are treated as a single employer under 
                        section 52(a) shall be treated--
                                  ``(I) as 1 taxpayer for purposes of 
                                this paragraph, and
                                  ``(II) as having elected the 
                                application of this paragraph if any 
                                such corporation so elects.
                  ``(C) Credit refundable.--For purposes of section 
                6401(b), the aggregate increase in the credits 
                allowable under part IV of subchapter A for any taxable 
                year resulting from the application of this paragraph 
                shall be treated as allowed under subpart C of such 
                part (and not any other subpart).
                  ``(D) Other rules.--
                          ``(i) Election.--Any election under this 
                        paragraph may be revoked only with the consent 
                        of the Secretary.
                          ``(ii) Partnerships with electing partners.--
                        In the case of a corporation which is a partner 
                        in a partnership and which makes an election 
                        under subparagraph (A) for the taxable year, 
                        for purposes of determining such corporation's 
                        distributive share of partnership items under 
                        section 702 for such taxable year--
                                  ``(I) paragraphs (1)(A), (2)(D)(i), 
                                and (5)(A)(i) shall not apply, and
                                  ``(II) the applicable depreciation 
                                method used under this section with 
                                respect to any qualified property shall 
                                be the straight line method.
                          ``(iii) Certain partnerships.--In the case of 
                        a partnership in which more than 50 percent of 
                        the capital and profits interests are owned 
                        (directly or indirectly) at all times during 
                        the taxable year by 1 corporation (or by 
                        corporations treated as 1 taxpayer under 
                        subparagraph (B)(iii)), each partner shall 
                        compute its bonus depreciation amount under 
                        clause (i) of subparagraph (B) by taking into 
                        account its distributive share of the amounts 
                        determined by the partnership under subclauses 
                        (I) and (II) of such clause for the taxable 
                        year of the partnership ending with or within 
                        the taxable year of the partner.''.
  (c) Special Rules for Trees and Vines Bearing Fruits and Nuts.--
Section 168(k) of such Code is amended--
          (1) by striking paragraph (5), and
          (2) by inserting after paragraph (4) the following new 
        paragraph:
          ``(5) Special rules for trees and vines bearing fruits and 
        nuts.--
                  ``(A) In general.--In the case of any tree or vine 
                bearing fruits or nuts which is planted, or is grafted 
                to a plant that has already been planted, by the 
                taxpayer in the ordinary course of the taxpayer's 
                farming business (as defined in section 263A(e)(4))--
                          ``(i) a depreciation deduction equal to 50 
                        percent of the adjusted basis of such tree or 
                        vine shall be allowed under section 167(a) for 
                        the taxable year in which such tree or vine is 
                        so planted or grafted, and
                          ``(ii) the adjusted basis of such tree or 
                        vine shall be reduced by the amount of such 
                        deduction.
                  ``(B) Election out.--If a taxpayer makes an election 
                under this subparagraph for any taxable year, this 
                paragraph shall not apply to any tree or vine planted 
                or grafted during such taxable year. An election under 
                this subparagraph may be revoked only with the consent 
                of the Secretary.
                  ``(C) Additional depreciation may be claimed only 
                once.--If this paragraph applies to any tree or vine, 
                such tree or vine shall not be treated as qualified 
                property in the taxable year in which placed in 
                service.
                  ``(D) Coordination with election to accelerate amt 
                credits.--If a corporation makes an election under 
                paragraph (4) for any taxable year, the amount under 
                paragraph (4)(B)(i)(I) for such taxable year shall be 
                increased by the amount determined under subparagraph 
                (A)(i) for such taxable year.
                  ``(E) Deduction allowed in computing minimum tax.--
                Rules similar to the rules of paragraph (2)(E) shall 
                apply for purposes of this paragraph.''.
  (d) Conforming Amendments.--
          (1) Section 168(e)(8) of such Code is amended by striking 
        subparagraph (D).
          (2) Section 168(k) of such Code is amended by adding at the 
        end the following new paragraph:
          ``(6) Election out.--If a taxpayer makes an election under 
        this paragraph with respect to any class of property for any 
        taxable year, this subsection shall not apply to all property 
        in such class placed in service (or, in the case of paragraph 
        (5), planted or grafted) during such taxable year. An election 
        under this paragraph may be revoked only with the consent of 
        the Secretary.''.
          (3) Section 168(l)(5) of such Code is amended by striking 
        ``section 168(k)(2)(G)'' and inserting ``section 
        168(k)(2)(E)''.
          (4) Section 263A(c) of such Code is amended by adding at the 
        end the following new paragraph:
          ``(7) Coordination with section 168(k)(5).--This section 
        shall not apply to any amount allowable as a deduction by 
        reason of section 168(k)(5) (relating to special rules for 
        trees and vines bearing fruits and nuts).''.
          (5) Section 460(c)(6)(B) of such Code is amended by striking 
        ``which--'' and all that follows and inserting ``which has a 
        recovery period of 7 years or less.''.
          (6) Section 168(k) of such Code is amended by striking 
        ``Acquired After December 31, 2007, and Before January 1, 
        2014'' in the heading thereof.
  (e) Effective Dates.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        property placed in service after December 31, 2013.
          (2) Expansion of election to accelerate amt credits in lieu 
        of bonus depreciation.--
                  (A) In general.--The amendment made by subsection (b) 
                (other than so much of such amendment as relates to 
                section 168(k)(4)(D)(iii) of such Code, as added by 
                such amendment) shall apply to taxable years ending 
                after December 31, 2013.
                  (B) Transitional rule.--In the case of a taxable year 
                beginning before January 1, 2014, and ending after 
                December 31, 2013, the bonus depreciation amount 
                determined under section 168(k)(4) of such Code for 
                such year shall be the sum of--
                          (i) such amount determined without regard to 
                        the amendments made by this section and--
                                  (I) by taking into account only 
                                property placed in service before 
                                January 1, 2014, and
                                  (II) by multiplying the limitation 
                                under section 168(k)(4)(C)(ii) of such 
                                Code (determined without regard to the 
                                amendments made by this section) by a 
                                fraction the numerator of which is the 
                                number of days in the taxable year 
                                before January 1, 2014, and the 
                                denominator of which is the number of 
                                days in the taxable year, and
                          (ii) such amount determined after taking into 
                        account the amendments made by this section 
                        and--
                                  (I) by taking into account only 
                                property placed in service after 
                                December 31, 2013, and
                                  (II) by multiplying the limitation 
                                under section 168(k)(4)(B)(ii) of such 
                                Code (as amended by this section) by a 
                                fraction the numerator of which is the 
                                number of days in the taxable year 
                                after December 31, 2013, and the 
                                denominator of which is the number of 
                                days in the taxable year.
          (3) Special rules for certain trees and vines.--The amendment 
        made by subsection (c)(2) shall apply to trees and vines 
        planted or grafted after December 31, 2013.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    H.R. 4718, reported by the Committee on Ways and Means, 
provides that businesses may claim an additional first-year 
depreciation deduction (``bonus depreciation'') equal to 50 
percent of the cost of qualified property placed in service 
after December 31, 2013. A similar, temporary provision expired 
for property placed in service before January 1, 2014. H.R. 
4718 expands the scope of qualifying property eligible for 
bonus depreciation to include qualified retail improvement 
property, and permits a tree or vine bearing fruit or nuts to 
be eligible for bonus depreciation when planted or grafted, 
rather than when placed in service. H.R. 4718 adjusts for 
inflation the bonus depreciation deduction for passenger 
automobiles subject to section 280F.
    Similar to a temporary provision that expired for taxable 
years beginning after December 31, 2013, H.R. 4718 permits 
taxpayers to claim a portion of unused alternative minimum tax 
(``AMT'') credits in lieu of bonus depreciation. Compared with 
the expired provision, H.R. 4718 increases the maximum credit 
taxpayers may claim to the lesser of (1) 50 percent of the 
taxpayer's AMT credit in 2014, or (2) the taxpayer's AMT 
credits for taxable years ending before 2014 (with the oldest 
credits taken into account first).

                 B. Background and Need for Legislation

    While the Committee continues actively to pursue 
comprehensive tax reform as a critical means of promoting 
economic growth and job creation, the Committee also believes 
that it is important to provide businesses permanent, immediate 
tax relief to encourage faster economic growth and job 
creation. By restoring and making permanent the 50-percent 
bonus depreciation deduction, H.R. 4718 would continue an 
important incentive for businesses and farms that have 
struggled through the economic challenges of the past six years 
to invest in critical business assets. Permanent 50-percent 
bonus depreciation would provide essential certainty for 
American businesses, allowing them to plan for future 
investments and lowering the cost of capital. By expanding 
bonus depreciation to retail improvement property, H.R. 4718 
would encourage investment in retail businesses that have 
survived the sluggish economic recovery. H.R. 4718 would also 
ensure that businesses' ability to acquire critical business 
vehicles will keep pace with the cost of such investments in 
future years by indexing the bonus-depreciation limits for 
certain passenger automobiles. Finally, by increasing the 
ability of businesses to access trapped AMT credits, H.R. 4718 
would provide vital cash for investments in business operations 
and growth, as well as much-needed job creation and increased 
wages.

                         C. Legislative History


Background

    H.R. 4718 was introduced on May 22, 2014, and was referred 
to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 4718, a bill 
to modify and make permanent bonus depreciation, on May 29, 
2014, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee hearings

    The need for permanent rules regarding bonus depreciation 
was discussed at no fewer than seven hearings during the 112th 
and 113th Congresses:
           Full Committee Hearing on How Business Tax 
        Reform Can Encourage Job Creation (June 2, 2011);
           Full Committee Hearing on the Interaction of 
        Tax and Financial Accounting on Tax Reform (February 8, 
        2012);
           Full Committee Hearing on the President's 
        Fiscal Year 2013 Budget Proposal with U.S. Department 
        of the Treasury Secretary Timothy F. Geithner (February 
        15, 2012);
           Select Revenue Measures Subcommittee Hearing 
        on Certain Expiring Tax Provisions (April 26, 2012);
           Full Committee Hearing on Tax Reform and the 
        U.S. Manufacturing Sector (July 19, 2012);
           Full Committee Hearing on Tax Reform and 
        Residential Real Estate (April 25, 2013); and
           Full Committee Hearing on the Benefits of 
        Permanent Tax Policy for America's Job Creators (April 
        8, 2014).

                      II. EXPLANATION OF THE BILL


 A. Bonus Depreciation Modified and Made Permanent (sec. 168(k) of the 
                                 Code)


                              PRESENT LAW

In general

    An additional first-year depreciation deduction is allowed 
equal to 50 percent of the adjusted basis of qualified property 
acquired and placed in service after December 31, 2007 and 
before January 1, 2014 (January 1, 2015 for certain longer-
lived and transportation property).\1\
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    \1\ Sec. 168(k). The additional first-year depreciation deduction 
is subject to the general rules regarding whether an item must be 
capitalized under section 263A. An additional first-year depreciation 
deduction is allowed equal to 100 percent of the adjusted basis of 
qualified original-use property if it meets the requirements for the 
additional first-year depreciation and the taxpayer acquired and placed 
the property in service after September 8, 2010 and before January 1, 
2012 (January 1, 2013 for certain longer-lived and transportation 
property). Sec. 168(k)(5). See also Rev. Proc. 2011-26, 2011-16 I.R.B. 
664, 2011.
---------------------------------------------------------------------------
    The additional first-year depreciation deduction is allowed 
for both the regular tax and the alternative minimum tax 
(``AMT''),\2\ but is not allowed in computing earnings and 
profits.\3\ The basis of the property and the depreciation 
allowances in the year of purchase and later years are 
appropriately adjusted to reflect the additional first-year 
depreciation deduction.\4\ The amount of the additional first-
year depreciation deduction is not affected by a short taxable 
year.\5\ The taxpayer may elect out of additional first-year 
depreciation for any class of property for any taxable year.\6\
---------------------------------------------------------------------------
    \2\ Sec. 168(k)(2)(G). See also Treas. Reg. sec. 1.168(k)-1(d).
    \3\Treas. Reg. sec. 1.168(k)-1(f)(7).
    \4\Sec. 168(k)(1)(B).
    \5\Ibid.
    \6\Sec. 168(k)(2)(D)(iii). For the definition of a class of 
property, see Treas. Reg. sec. 1.168(k)-1(e)(2).
---------------------------------------------------------------------------
    The interaction of the additional first-year depreciation 
allowance with the otherwise applicable depreciation allowance 
may be illustrated as follows. Assume that in 2013, a taxpayer 
purchased new depreciable property and placed it in service.\7\ 
The property's cost is $1,000, and it is five-year property 
subject to the 200 percent declining balance method and half-
year convention. The amount of additional first-year 
depreciation allowed is $500. The remaining $500 of the cost of 
the property is depreciable under the rules applicable to five-
year property. Thus $100\8\ also is allowed as a depreciation 
deduction in 2013. The total depreciation deduction with 
respect to the property for 2013 is $600. The remaining $400 
adjusted basis of the property generally is recovered through 
otherwise applicable depreciation rules.
---------------------------------------------------------------------------
    \7\Assume that the cost of the property is not eligible for 
expensing under section 179.
    \8\$100 results from the application of the half-year convention 
and the 200 percent declining balance method to the remaining $500.
---------------------------------------------------------------------------
    Property qualifying for the additional first-year 
depreciation deduction must meet all of the following 
requirements. First, the property must be (1) property to which 
the modified accelerated cost recovery system (``MACRS'') 
applies with an applicable recovery period of 20 years or less; 
(2) water utility property (as defined in section 168(e)(5)); 
(3) computer software other than computer software covered by 
section 197; or (4) qualified leasehold improvement property 
(as defined in section 168(k)(3)).\9\ Second, the original 
use\10\ of the property must commence with the taxpayer after 
December 31, 2007.\11\ Third, the taxpayer must acquire the 
property within the applicable time period (as described 
below). Finally, the property must be placed in service before 
January 1, 2014. An extension of the placed-in-service date of 
one year (i.e., before January 1, 2015) is provided for certain 
property with a recovery period of 10 years or longer and 
certain transportation property.\12\
---------------------------------------------------------------------------
    \9\The additional first-year depreciation deduction is not 
available for any property that is required to be depreciated under the 
alternative depreciation system of MACRS. Sec. 168(k)(2)(D)(i). The 
additional first-year depreciation deduction also is not available for 
qualified New York Liberty Zone leasehold improvement property as 
defined in section 1400L(c)(2). Sec. 168(k)(2)(D)(ii).
    \10\The term ``original use'' means the first use to which the 
property is put, whether or not such use corresponds to the use of such 
property by the taxpayer. If in the normal course of its business a 
taxpayer sells fractional interests in property to unrelated third 
parties, then the original use of such property begins with the first 
user of each fractional interest (i.e., each fractional owner is 
considered the original user of its proportionate share of the 
property). Treas. Reg. sec. 1.168(k)-1(b)(3).
    \11\A special rule applies in the case of certain leased property. 
In the case of any property that is originally placed in service by a 
person and that is sold to the taxpayer and leased back to such person 
by the taxpayer within three months after the date that the property 
was placed in service, the property would be treated as originally 
placed in service by the taxpayer not earlier than the date that the 
property is used under the leaseback. If property is originally placed 
in service by a lessor, such property is sold within three months after 
the date that the property was placed in service, and the user of such 
property does not change, then the property is treated as originally 
placed in service by the taxpayer not earlier than the date of such 
sale. Sec. 168(k)(2)(E)(ii).
    \12\Property qualifying for the extended placed-in-service date 
must have an estimated production period exceeding one year and a cost 
exceeding $1 million. Transportation property generally is defined as 
tangible personal property used in the trade or business of 
transporting persons or property. Certain aircraft which is not 
transportation property, other than for agricultural or firefighting 
uses, also qualifies for the extended placed-in-service-date, if at the 
time of the contract for purchase, the purchaser made a nonrefundable 
deposit of the lesser of 10 percent of the cost or $100,000, and which 
has an estimated production period exceeding four months and a cost 
exceeding $200,000.
---------------------------------------------------------------------------
    To qualify, property must be acquired (1) after December 
31, 2007, and before January 1, 2014, but only if no binding 
written contract for the acquisition is in effect before 
January 1, 2008, or (2) pursuant to a binding written contract 
which was entered into after December 31, 2007, and before 
January 1, 2014.\13\ With respect to property that is 
manufactured, constructed, or produced by the taxpayer for use 
by the taxpayer, the taxpayer must begin the manufacture, 
construction, or production of the property after December 31, 
2007, and before January 1, 2014.\14\ Property that is 
manufactured, constructed, or produced for the taxpayer by 
another person under a contract that is entered into prior to 
the manufacture, construction, or production of the property is 
considered to be manufactured, constructed, or produced by the 
taxpayer.\15\ For property eligible for the extended placed-in-
service date, a special rule limits the amount of costs 
eligible for the additional first-year depreciation. With 
respect to such property, only the portion of the basis that is 
properly attributable to the costs incurred before January 1, 
2014 (``progress expenditures'') is eligible for the additional 
first-year depreciation deduction.\16\
---------------------------------------------------------------------------
    \13\In the case of a binding written contract to acquire one or 
more components of a larger self-constructed asset, the larger self-
constructed asset will not fail to qualify for the additional first-
year depreciation merely because a binding written contract to acquire 
one or more components of such property was in effect prior to January 
1, 2008. See Treas. Reg. sec. 1.168(k)-1(b)(4)(iii)(C). See also, 
Treas. Reg. sec. 1.168(k)-1(b)(4)(v), Examples 6 and 7.
    \14\Sec. 168(k)(2)(E)(i).
    \15\Treas. Reg. sec. 1.168(k)-1(b)(4)(iii).
    \16\Sec. 168(k)(2)(B)(ii). For purposes of determining the amount 
of eligible progress expenditures, rules similar to section 46(d)(3) as 
in effect prior to the Tax Reform Act of 1986 apply.
---------------------------------------------------------------------------
    Property does not qualify for the additional first-year 
depreciation deduction when the user of such property (or a 
related party) would not have been eligible for the additional 
first-year depreciation deduction if the user (or a related 
party) were treated as the owner.\17\ For example, if a 
taxpayer sells to a related party property that was under 
construction prior to January 1, 2008, the property does not 
qualify for the additional first-year depreciation deduction. 
Similarly, if a taxpayer sells to a related party property that 
was subject to a binding written contract prior to January 1, 
2008, the property does not qualify for the additional first-
year depreciation deduction. As a further example, if a 
taxpayer (the lessee) sells property in a sale-leaseback 
arrangement, and the property otherwise would not have 
qualified for the additional first-year depreciation deduction 
if it were owned by the taxpayer-lessee, then the lessor is not 
entitled to the additional first-year depreciation deduction.
---------------------------------------------------------------------------
    \17\Sec. 168(k)(2)(E)(iv).
---------------------------------------------------------------------------
    The limitation under section 280F on the amount of 
depreciation deductions allowed with respect to certain 
passenger automobiles is increased in the first year by $8,000 
for automobiles that qualify (and for which the taxpayer does 
not elect out of the additional first-year deduction).\18\ The 
$8,000 amount is not indexed for inflation.
---------------------------------------------------------------------------
    \18\Sec. 168(k)(2)(F).
---------------------------------------------------------------------------

Special rule for long-term contracts

    In general, in the case of a long-term contract, the 
taxable income from the contract is determined under the 
percentage-of-completion method.\19\ Solely for purposes of 
determining the percentage of completion under section 
460(b)(1)(A), the cost of qualified property with a MACRS 
recovery period of seven years or less is taken into account as 
a cost allocated to the contract as if bonus depreciation had 
not been enacted for property placed in service (1) after 
December 31, 2009 and before January 1, 2011 (January 1, 2012 
in the case of certain longer-lived and transportation 
property) or (2) after December 31, 2012 and before January 1, 
2014 (January 1, 2015 in the case of certain longer-lived and 
transportation property).\20\ Bonus depreciation generally is 
taken into account in determining taxable income under the 
percentage-of-completion method for property placed in service 
after December 31, 2010 and before January 1, 2013.
---------------------------------------------------------------------------
    \19\See sec. 460.
    \20\Sec. 460(c)(6).
---------------------------------------------------------------------------

Election to accelerate AMT credits in lieu of bonus depreciation

    A corporation otherwise eligible for additional first-year 
depreciation may elect to claim additional AMT credits in lieu 
of claiming additional depreciation with respect to ``eligible 
qualified property.''\21\ In the case of a corporation making 
this election, the straight line method is used for the regular 
tax and the AMT with respect to eligible qualified 
property.\22\
---------------------------------------------------------------------------
    \21\Sec. 168(k)(4). Eligible qualified property means qualified 
property eligible for bonus depreciation with minor effective date 
differences having little (if any) remaining significance.
    \22\Sec. 168(k)(4)(A).
---------------------------------------------------------------------------
    Generally, an election under this provision for a taxable 
year applies to subsequent taxable years. However, each time 
the provision has been extended, a corporation which has 
previously made an election has been allowed to elect not to 
claim additional minimum tax credits, or, if no election had 
previously been made, to make an election to claim additional 
credits with respect to property subject to the extension.\23\
---------------------------------------------------------------------------
    \23\Secs. 168(k)(4)(H), (I), and (J).
---------------------------------------------------------------------------
    A corporation making an election increases the tax 
liability limitation under section 53(c) on the use of minimum 
tax credits by the bonus depreciation amount.\24\ The aggregate 
increase in credits allowable by reason of the increased 
limitation is treated as refundable.\25\
---------------------------------------------------------------------------
    \24\Sec. 168(k)(4)(B)(ii).
    \25\Sec. 168(k)(4)(F).
---------------------------------------------------------------------------
    The bonus depreciation amount generally is equal to 20 
percent of bonus depreciation\26\ for eligible qualified 
property that could be claimed as a deduction absent an 
election under this provision. As originally enacted, the bonus 
depreciation amount for all taxable years was limited to the 
lesser of (1) $30 million, or (2) six percent of the minimum 
tax credits allocable to the adjusted net minimum tax imposed 
for taxable years beginning before January 1, 2006.\27\ 
However, extensions of this provision have provided that this 
limitation applies separately to property subject to each 
extension.
---------------------------------------------------------------------------
    \26\For this purpose, bonus depreciation is the difference between 
(i) the aggregate amount of depreciation determined if section 
168(k)(1) applied to all eligible qualified property placed in service 
during the taxable year and (ii) the amount of depreciation that would 
be so determined if section 168(k)(1) did not so apply.  This 
determination is made using the most accelerated depreciation method 
and the shortest life otherwise allowable for each property.  Sec. 
168(k)(4)(C).
    \27\Sec. 168(k)(4)(C)(iii).
---------------------------------------------------------------------------
    All corporations treated as a single employer under section 
52(a) are treated as one taxpayer for purposes of the 
limitation, as well as for electing the application of this 
provision.\28\
---------------------------------------------------------------------------
    \28\Sec. 168(k)(4)(C)(iv).
---------------------------------------------------------------------------
    In the case of a corporation making an election which is a 
partner in a partnership, for purposes of determining the 
electing partner's distributive share of partnership items, 
bonus depreciation does not apply to any eligible qualified 
property and the straight line method is used with respect to 
that property.\29\
---------------------------------------------------------------------------
    \29\Sec. 168(k)(4)(G)(ii).
---------------------------------------------------------------------------

Qualified retail improvement property

    Qualified retail improvement property placed in service 
after December 31, 2008, and before January 1, 2014 is 
depreciated over 15 years using the straight line method and a 
half-year convention.\30\ Qualified retail improvement property 
placed in service on or after January 1, 2014 generally is 
depreciated using the straight line method over a 39-year 
recovery period, beginning in the month the addition or 
improvement was placed in service.\31\ Qualified retail 
improvement property is defined as any improvement to an 
interior portion of a building that is nonresidential real 
property if such portion is open to the general public\32\ and 
is used in the retail trade or business of selling tangible 
personal property to the general public, and such improvement 
is placed in service more than three years after the date the 
building was first placed in service.\33\ Qualified retail 
improvement property does not include any improvement for which 
the expenditure is attributable to the enlargement of the 
building, any elevator or escalator, any structural component 
benefitting a common area, or the internal structural framework 
of the building.\34\ In the case of an improvement made by the 
owner of such improvement, the improvement is a qualified 
retail improvement only so long as the improvement is held by 
such owner.\35\ Additionally, qualified retail improvement 
property is not eligible for bonus depreciation, unless it also 
meets the definition of qualified leasehold improvement 
property.\36\
---------------------------------------------------------------------------
    \30\Secs. 168(e)(3)(E)(ix) and (e)(8).
    \31\See secs. 168(b)(3), (c), and (d)(2).
    \32\Improvements to portions of a building not open to the general 
public (e.g., stock room in back of retail space) do not qualify under 
the provision.
    \33\Sec. 168(e)(8)(A).
    \34\ Sec. 168(e)(8)(C).
    \35\Sec. 168(e)(8)(B).
    \36\See sec. 168(e)(8)(D) and Rev. Proc. 2011-26.
---------------------------------------------------------------------------

Preproductive period costs of orchards, groves, and vineyards

    An orchard, vineyard or grove generally produces annual 
crops of fruits (e.g., apples, avocadoes, or grapes) or nuts 
(e.g., pecans, pistachios, or walnuts). During the development 
period of the trees or vines, a farmer generally incurs costs 
to cultivate, spray, fertilize and irrigate the tree or vine to 
its crop-producing stage (i.e., preproductive period 
costs).\37\ Preproductive period costs may be deducted or 
capitalized, depending on the preproductive period of the tree 
or vine,\38\ as well as whether the farmer elects to have 
section 263A not apply.\39\ After the trees or vines start 
producing fruit or nuts, a farmer may depreciate the 
capitalized costs of the trees or vines (i.e., the acquisition 
costs of the seeds, seedlings, or plants and their original 
planting which were capitalized when incurred, as well as the 
preproductive period costs if section 263A applied).\40\ A ten-
year recovery period is assigned to any tree or vine bearing 
fruits or nuts.\41\
---------------------------------------------------------------------------
    \37\See section 263A(e)(3), which defines the ``preproductive 
period'' of a plant which will have more than one crop or yield as the 
period before the first marketable crop or yield from such plant.
    \38\See section 263A(d)(1)(A)(ii). Section 263A generally requires 
certain direct and indirect costs allocable to real or tangible 
personal property produced by the taxpayer to be included in either 
inventory or capitalized into the basis of such property, as 
applicable.
    \39\See section 263A(d)(3).
    \40\In the case of any tree or vine bearing fruits or nuts, the 
placed in service date does not occur until the tree or vine first 
reaches an income-producing stage. Treas. Reg. sec. 1.46-3(d)(2). See 
also, Rev. Rul. 80-25, 1980-1 C.B. 65, 1980; and Rev. Rul. 69-249, 
1969-1 C.B. 31, 1969.
    \41\Sec. 168(e)(3)(D)(ii).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

Bonus depreciation

    The Committee believes that modifying and making the 
additional first-year depreciation deduction permanent provides 
businesses with the certainty needed to increase purchases of 
equipment and other assets, and promote capital investment, 
modernization, and growth.
    Retailers frequently remodel or renovate the interiors of 
their stores. The Committee believes that retailers should not 
be treated differently based on whether the building in which 
they operate is owned or leased. As many retailers own the 
building in which they operate their business, the Committee 
believes that expanding the definition of qualified property to 
specifically include qualified retail improvement property 
provides clarity and relief to many retailers.
    In addition, in order to counteract the negative impact of 
inflation on the $8,000 increase amount in the section 280F 
limitation on the first year depreciation deduction allowed 
with respect to certain passenger automobiles for which bonus 
depreciation is claimed, the Committee believes it is 
appropriate to index such amount for automobile price 
inflation.

Expansion of election to accelerate AMT credits in lieu of bonus 
        depreciation

    The Committee believes that expanding the election to 
accelerate AMT credits in lieu of bonus depreciation enables 
corporations that would otherwise derive no benefit from bonus 
depreciation to better access capital in order to expand and 
invest in new facilities and equipment.

Special rules for trees and vines bearing fruits and nuts

    The Committee believes that allowing growers of trees or 
vines that bear fruit or nuts to elect to claim bonus 
depreciation in the year of planting or grafting, rather than 
having to wait until the year in which the tree or vine 
produces a commercially viable or harvestable crop of fruits or 
nuts, encourages farmers to invest in their long-term crop 
businesses.

                        EXPLANATION OF PROVISION

Bonus depreciation

    The provision makes permanent the 50-percent additional 
first-year depreciation deduction for qualified property.\42\
---------------------------------------------------------------------------
    \42\Due to the passage of time since the provision's original 
enactment, the provision eliminates the various acquisition date 
requirements as no longer relevant. The provision also repeals as 
deadwood the provision relating to property acquired during certain 
pre-2012 periods (or certain pre-2013 periods for certain longer-lived 
and transportation property).
---------------------------------------------------------------------------
    The provision expands the definition of qualified property 
to include qualified retail improvement property.
    The $8,000 increase amount in the limitation on the 
depreciation deductions allowed with respect to certain 
passenger automobiles is indexed for automobile price 
inflation. The increase does not apply to a taxpayer who elects 
to accelerate AMT credits for a taxable year.
    The provision also makes permanent the special rule for the 
allocation of bonus depreciation to a long-term contract, which 
provides that solely for purposes of determining the percentage 
of completion under section 460(b)(1)(A), the cost of qualified 
property with a MACRS recovery period of seven years or less is 
taken into account as a cost allocated to the contract as if 
bonus depreciation had not been enacted.

Expansion of election to accelerate AMT credits in lieu of bonus 
        depreciation

    The provision makes permanent and modifies the election to 
increase the AMT credit limitation in lieu of bonus 
depreciation. Under the provision, the bonus depreciation 
amount for a taxable year (as defined under present law with 
respect to all qualified property) is limited to the lesser of 
(1) 50 percent of the minimum tax credit for the first taxable 
year ending after December 31, 2013 (determined before the 
application of any tax liability limitation), or (2) the 
minimum tax credit for the taxable year allocable to the 
adjusted net minimum tax imposed for taxable years ending 
before January 1, 2014 (determined before the application of 
any tax liability limitation and determined on a first-in, 
first-out basis).
    The provision also provides that in the case of a 
partnership having a single corporate partner owning (directly 
or indirectly) more than 50-percent capital and profits 
interests in the partnership, each partner takes into account 
its distributive share of partnership depreciation in 
determining its bonus depreciation amount.

Special rules for trees and vines bearing fruits and nuts

    In addition, the provision allows a taxpayer to claim bonus 
depreciation on trees or vines bearing fruits or nuts, in the 
taxable year in which the tree or vine is planted, or grafted 
to a plant that has already been planted, by the taxpayer in 
the ordinary course of the taxpayer's farming business 
(notwithstanding that the tree or vine has not yet been placed 
in service in that year). The adjusted basis of the tree or 
vine is reduced by the amount of the deduction under this 
provision. Further, any amount deducted under this provision is 
not subject to capitalization under section 263A. A taxpayer 
may elect to have this provision not apply to trees or vines 
planted or grafted in that taxable year. If a taxpayer does not 
elect out of this provision, the tree or vine will not be 
eligible for bonus depreciation in the subsequent taxable year 
in which it is placed in service.

                             EFFECTIVE DATE

    The provision relating to additional first-year 
depreciation is effective for property placed in service after 
December 31, 2013.
    The provision relating to the election to accelerate AMT 
credits in lieu of claiming bonus depreciation generally 
applies to taxable years ending after December 31, 2013.\43\ 
For a taxable year beginning before January 1, 2014, and ending 
after December 31, 2013, a transitional rule applies for 
purposes of determining the amount eligible for the election to 
claim additional AMT credits. The transitional rule applies the 
present-law limitations to property placed in service in 2013 
and the revised limitations to property placed in service in 
2014.
---------------------------------------------------------------------------
    \43\The partnership rule added by the provision applies to property 
placed in service after December 31, 2013.
---------------------------------------------------------------------------
    The provision relating to trees and vines is effective for 
property planted or grafted after December 31, 2013.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 4718, a bill to modify and make permanent 
bonus depreciation, on May 29, 2014.
    The bill, H.R. 4718, was ordered favorably reported as 
amended by a roll call vote of 23 yeas to 11 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp.......................     ........  .........  Mr. Levin........  ........     .........
Mr. Johnson....................     ........  .........  Mr. Rangel.......  ........  ........  .........
Mr. Brady......................     ........  .........  Mr. McDermott....  ........     .........
Mr. Ryan.......................     ........  .........  Mr. Lewis........  ........  ........  .........
Mr. Nunes......................     ........  .........  Mr. Neal.........  ........  ........  .........
Mr. Tiberi.....................     ........  .........  Mr. Becerra......  ........     .........
Mr. Reichert...................     ........  .........  Mr. Doggett......  ........     .........
Mr. Boustany...................     ........  .........  Mr. Thompson.....  ........     .........
Mr. Roskam.....................     ........  .........  Mr. Larson.......  ........     .........
Mr. Gerlach....................     ........  .........  Mr. Blumenauer...  ........     .........
Mr. Price......................     ........  .........  Mr. Kind.........  ........     .........
Mr. Buchanan...................     ........  .........  Mr. Pascrell.....  ........  ........  .........
Mr. Smith......................     ........  .........  Mr. Crowley......  ........  ........  .........
Mr. Schock.....................     ........  .........  Ms. Schwartz.....  ........     .........
Ms. Jenkins....................     ........  .........  Mr. Davis........  ........     .........
Mr. Paulsen....................     ........  .........  Ms. Sanchez......  ........     .........
Mr. Marchant...................     ........  .........
Ms. Black......................     ........  .........
Mr. Reed.......................     ........  .........
Mr. Young......................     ........  .........
Mr. Kelly......................     ........  .........
Mr. Griffin....................     ........  .........
Mr. Renacci....................     ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 4718, as 
reported.

                                                                                          FISCAL YEARS
                                                                                      [Millions of Dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    2014       2015       2016       2017       2018       2019       2020       2021       2022       2023       2024      2014-19     2014-24
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Bonus depreciation including special rules for      -8,738    -79,252    -42,071    -35,002    -26,371    -17,359    -12,028    -10,061    -10,019    -10,701    -11,309    -208,792    -262,911
 trees and vines bearing fruits and nuts........
Expansion of election to accelerate AMT credits     -2,456     -4,101     -4,486     -4,829     -5,198     -2,893       -551          3          3          3          4     -23,964    -24,502
 in lieu of bonus depreciation..................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 5, 2014.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4718, a bill to 
amend the Internal Revenue Code of 1986 to modify and make 
permanent bonus depreciation.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Logan 
Timmerhoff.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 4718--A bill to amend the Internal Revenue Code of 1986 to modify 
        and make permanent bonus depreciation

    H.R. 4718 would amend the Internal Revenue Code to 
permanently provide an additional first-year depreciation 
deduction of 50 percent of the adjusted basis of qualified 
property, effective January 1, 2014. Under current law that 
additional deduction expired after December 31, 2013. H.R. 4718 
would also expand the definition of qualified property to 
include certain retail improvement property and certain trees 
and vines bearing nuts or fruits. It would also expand and make 
permanent recently expired provisions that allowed corporations 
to claim additional credits against the alternative minimum tax 
instead of claiming the additional first-year depreciation 
deduction.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 4718 would reduce revenues, thus 
increasing federal budget deficits, by about $287 billion over 
the 2014-2024 period.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending and revenues. Enacting H.R. 4718 would result 
in revenue losses in each year beginning in 2014. The estimated 
increases in the deficit are shown in the following table.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Logan 
Timmerhoff. The estimate was approved by David Weiner, 
Assistant Director for Tax Analysis.

            CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 4718, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON MAY 29, 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         By fiscal year, in millions of dollars--
                                ------------------------------------------------------------------------------------------------------------------------
                                   2014     2015     2016     2017     2018     2019     2020     2021     2022     2023     2024   2014-2019  2014-2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT

Statutory Pay-As-You-Go Effects   11,194   83,353   46,557   39,831   31,569   20,252   12,579   10,058   10,016   10,698   11,305    232,756   287,413
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to totals because of rounding.

                   sD. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the staff of the Joint 
Committee on Taxation provides the following analysis of H.R. 
4718, as ordered reported by the Committee on Ways and Means on 
May 29, 2014.

Overview

    The following discussion analyzes the macroeconomic effects 
of this bill relative to the 2014 economic and receipts 
baseline published by the Congressional Budget Office (``CBO'') 
in February, 2014.\44\ We analyzed the bill using the Joint 
Committee staff macroeconomic equilibrium growth model 
(``MEG''), and an overlapping generations model (``OLG'').\45\ 
The proposal increases the expected after-tax return on 
investment in targeted depreciable property by allowing firms 
to deduct a larger share of their capital expenditures in the 
year of their purchase, relative to present law. This increase 
in after-tax returns on investment in business equipment and 
certain other depreciable property is expected to provide an 
incentive for an increase in savings and investment, resulting 
in an increase in business capital stock and the overall size 
of the economy, as measured by gross domestic product 
(``GDP''). Estimates of the extent of these effects depend on 
various modeling assumptions described below.
---------------------------------------------------------------------------
    \44\Congressional Budget Office, The Budget and Economic Outlook: 
2014-2024, February 4, 2014.
    \45\1ADescriptions of these models may be found in Joint Committee 
on Taxation, Summary of Economic Models and Estimating Practices of the 
Staff of the Joint Committee on Taxation (JCX-46-11), September 19, 
2011. The OLG model is leased from Tax Policy Advisors, LLC. Key 
behavioral parameters are provided in an appendix to the current 
document.
---------------------------------------------------------------------------

Discussion of proposal and modeling approach

    The following analysis was performed using the Joint 
Committee on Taxation staff's MEG model and an OLG model. Both 
models start with the standard, neoclassical assumption that 
the amount of output is determined by the availability of labor 
and capital, and that in the long run aggregate demand equals 
aggregate supply. Individuals are assumed to make decisions 
based on observed characteristics of the economy, including 
wages, prices, interest rates, tax rates, and government 
spending levels. Of particular relevance to this bill, firms' 
investment decisions are based on the expected after-tax rate 
of return from the investment.
    The bill would permanently extend a provision that allows 
businesses to deduct 50 percent of their investment in 
equipment (and a small, targeted subset of real property) in 
the year in which the equipment or property is placed in 
service, and depreciate the balance over the longer periods of 
time that apply to the full amount under present law. The 
effect of this incentive on the after-tax return on capital is 
modeled within both the MEG and OLG models by comparing the net 
present value of tax depreciation under the bill with that 
under present law. This change is calculated using the Joint 
Committee on Taxation staff's depreciation model, which models 
deduction patterns for each category of depreciable capital 
specified under the present law Modified Accelerated Cost 
Recovery System (``MACRS''), and can be configured to model any 
change in that pattern under proposed legislation. The effect 
of the bill on business tax revenues is simulated in both 
models by reducing average tax rates on businesses.
    In the MEG model, monetary policy conducted by the Federal 
Reserve Board is explicitly modeled, with lagged price 
adjustments allowing for the economy to be temporarily out of 
equilibrium in response to fiscal and monetary policy changes. 
The MEG model is used to examine the importance of different 
assumptions about Federal Reserve policy. Under the 
``Aggressive Fed'' policy, it is assumed that the Federal 
Reserve Board works to counteract any demand incentives 
resulting from fiscal policy. Because for this proposal the 
policy results in an incentive for people to increase their 
rate of savings, thus reducing their rate of consumption, the 
aggressive Fed simulation reduces interest rates to counter 
negative aggregate demand effects. It is not clear how 
effective such a policy would be in the context of an economy 
with interest rates already hovering near zero. The ``Neutral 
Fed'' simulations assume that the Federal Reserve Board targets 
a fixed monetary growth rate, and does not try to counteract 
fiscal policy.
    The MEG model is also used to present results using 
differing assumptions about the responsiveness of savings and 
investment to changes in the after-tax rate of return to 
capital. The ``default savings elasticity'' simulations use 
savings responsiveness parameters that are consistent with the 
median range of measured response levels from empirical 
studies. The ``high savings elasticity'' simulations increase 
savings responsiveness by about 15 percent.
    Individuals in the MEG model do not anticipate future 
changes in the economy or government finances; thus, this type 
of model is often referred to as a ``myopic'' behavior model. 
This feature of the MEG model allows the simulation of tax and 
government expenditure policy that may result in an 
unsustainable growth path. Specifically, policies that result 
in the Federal debt increasing, or decreasing at a faster rate 
than the growth of GDP, can be modeled.
    In the OLG model, individuals are assumed to make 
consumption and labor supply decisions to maximize their 
lifetime well-being given the resources they can foresee will 
be available to them. They are assumed to have complete 
information, or ``perfect foresight,'' about economic 
conditions, such as wages, prices, interest rates, tax rates, 
and government spending, over their lifetimes. Economic 
decisions are modeled separately for each of 55 adult-age 
cohorts. Firms' investment decisions respond to the effects of 
tax policy on the expected future value of the firm. Changes in 
marginal tax rates on firm profits, and changes in the value of 
deductions for investment affect this future valuation.
    One important difference between the MEG and OLG models is 
their treatment of Federal fiscal policy. In the MEG model, it 
is possible to simulate structural Federal budget deficits as 
forecast in the CBO baseline, and to allow for increases or 
decreases in the deficit in simulating proposals. In contrast, 
the OLG model cannot simulate either the present law fiscal 
baseline or policy proposals that incorporate unsustainable 
Federal budget deficits or surpluses. Thus, in the OLG model 
there is no equilibrium solution when Federal budget conditions 
appear unsustainable in the long run. It is necessary to create 
counterfactual stable ratios of debt to GDP within both the 
baseline and policy simulations of the OLG model.
    The bill is projected to increase deficits by decreasing 
business tax payments. Fiscal balance is achieved in the OLG 
simulations by reducing transfer payments enough to maintain a 
stable debt to GDP path. We present two variations of this 
assumption. In the ``concurrent fiscal balance'' simulation, 
transfer payments are modified each year. In the ``delayed 
fiscal balance'' simulation, the tax changes are debt-financed 
within the 10-year budget window, after which transfer payments 
are decreased to restore a stable debt to GDP path.

Macroeconomic analysis

    The ability to expense, rather than depreciate investment 
expenses reduces the cost to firms of making these investments, 
thus reducing their after-tax cost of capital and providing an 
incentive for increased investment.\46\ Some research on the 
effects of expensing on business investment has confirmed that 
investment increases when more generous expensing policy is in 
effect.\47\ Other research has raised questions about the 
efficacy of expensing as opposed to investment tax credits in 
encouraging investment in light of the fact that investment tax 
credits produce a more favorable picture in firm financial 
statements. However, such studies still find an overall 
positive effect of increased expensing on investment.\48\
---------------------------------------------------------------------------
    \46\Economic theory of the effects of ``cost of capital'' on 
investment was first formalized by Dale Jorgenson in 1963 ``Capital 
Theory and Investment Behavior,'' American Economic Review, 54, pp. 
247-59. Jorgenson, along with Robert Hall added effects of taxation, 
particularly depreciation policy to this framework in ``Tax Policy and 
Investment Behavior,'' American Economic Review, 57(3), pp 391-414 in 
1967. Many macroeconomic simulation models, including the Joint 
Committee on Taxation staff Macroeconomic Equilibrium Growth model, use 
this framework to model investment decisions.
    \47\See, for example, Bond, Stephen, and Jing Xin, ``Corporate 
Taxation and Capital Accumulation,'' Oxford University Centre for 
Business Taxation Working Paper, Said Business School, Oxford, UK, 
2010.
    \48\See, for example, Edgerton, Jesse, ``Investment, Accounting, 
and the Salience of the Corporate Income Tax,'' Finance and Discussion 
Series, Division of Research and Statistics and Monetary Affairs, 
Federal Reserve Board, Washington, D.C., March 21, 2011.
---------------------------------------------------------------------------
    The Joint Committee on Taxation staff estimates that 
approximately 40 percent of investments made under present law 
could potentially be eligible for the 50-percent expensing 
treatment provided for in this bill. However, not all 
businesses making eligible investments will be able to take 
full advantage of this benefit.\49\ Thus, the bill is expected 
to provide a modest incentive for an increase in investment, 
which is expected to result in a small increase in GDP.
---------------------------------------------------------------------------
    \49\For taxpayers carrying forward a loss or claiming a loss in the 
current year, the present value of bonus depreciation associated with 
equipment placed in service in the current year is diminished. 
Similarly, the value of claiming the alternative minimum tax credit 
provided by the bill as an alternative to bonus depreciation will 
depend on the taxpayer's particular situation.
---------------------------------------------------------------------------
    Following is a series of tables that show the effects of 
this proposal on real (inflation adjusted) gross domestic 
product, receipts, capital stock, employment, and consumption. 
Results from each policy simulation for each variable are 
presented as percentage changes from the levels forecasted 
under the present-law baseline for the variables in each of 
Tables 1 through 8 below.
            1. Effects on real gross domestic product and receipts

                          TABLE 1.--PERCENT CHANGE IN REAL GDP RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal       Fiscal       Fiscal
                                                                           Years  2015- Years  2020- Years  2015-
                                                                               2019         2024         2024
----------------------------------------------------------------------------------------------------------------
MEG:
    Default Savings Elasticity............  Aggressive Fed...............         0.1%         0.2%         0.2%
                                            Neutral Fed..................         0.1%         0.2%         0.2%
    High Savings Elasticity...............  Aggressive Fed...............         0.1%         0.3%         0.2%
                                            Neutral Fed..................         0.1%         0.2%         0.2%
OLG:
    Concurrent fiscal balance.............  .............................         0.1%         0.3%         0.2%
    Delayed fiscal balance................  .............................         0.1%         0.3%         0.2%
----------------------------------------------------------------------------------------------------------------


                           TABLE 2.--PERCENT CHANGE IN RECEIPTS DUE TO CHANGES IN GDP
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal       Fiscal       Fiscal
                                                                           Years  2015- Years  2020- Years  2015-
                                                                               2019         2024         2024
----------------------------------------------------------------------------------------------------------------
MEG:
    Default Savings Elasticity............  Aggressive Fed...............        -0.1%         0.1%          (1)
                                            Neutral Fed..................        -0.1%         0.1%          (1)
    High Savings Elasticity...............  Aggressive Fed...............        -0.1%         0.1%          (1)
                                            Neutral Fed..................        -0.1%         0.1%          (2)
OLG:
    Concurrent fiscal balance.............  .............................          (1)          (1)          (1)
    Delayed fiscal balance................  .............................          (1)          (1)         (1)
----------------------------------------------------------------------------------------------------------------
(1) Indicates an increase of less than 0.05 percent.
(2) Indicates a decrease of less than 0.05 percent.

    Table 1 shows the predicted effects of this policy on real 
gross domestic product, relative to what is projected under 
present law. Table 2 shows the predicted effects of these 
output changes on receipts. Relative to present law, real GDP 
is predicted to increase in the first half of the budget 
period, by about 0.1 percent, and to increase GDP by 0.2 to 0.3 
percent during the second five years of the budget period, 
overall increasing GDP on average by about 0.2 percent over the 
ten-year budget period. Among the MEG simulations, the higher 
predicted increase in the second-five-years is generated by the 
simulation that combines a higher responsiveness of savings to 
the after-tax rate of return with an aggressive Fed response. 
The higher savings responsiveness, while it leads to a bigger 
investment response, necessarily also leads to a decrease in 
the rate of consumption, which can reduce aggregate demand in 
the economy if there are unemployed resources. The aggressive 
Fed response assumes that the Fed would act to counter that 
reduction in demand.
    The OLG simulations also predict an increase in GDP of 0.3 
percent for the second half of the budget period. In the OLG 
simulations, the reduction in transfer payments that provides 
the fiscal balance for the revenue loss generated by this 
proposal provides some additional incentive for individuals to 
increase savings and investment.
    The simulations show that the projected increase in GDP 
also results in a small projected increase in Federal revenues 
of up to 0.1 percent of present law receipts in the second half 
of the budget period, but overall of less than 0.05 percent 
over the budget period. The change in receipts due to the 
economic growth projected under the bill is projected to be 
smaller than the change in GDP, even negative over the ten-year 
budget period under one simulation assumption. This receipts 
pattern is driven by the interaction of the specific tax change 
under the bill with the type of economic activity generated by 
the bill. That is, by increasing the deductibility of (mostly) 
equipment expenditures, the bill provides an incentive for more 
investment in equipment. This is expected to lead to an 
increase in productive capital stock that will, over time, 
generate additional growth capacity in the economy. Additional 
income generated by these responses can be expected to build 
slowly. At the same time, the increase in deductible purchases 
may result in a net reduction in the tax base. This effect is 
apparent in the MEG simulations, which project a reduction in 
receipts due to the induced investment in the first half of the 
budget period.
    In the following sections on capital stock, employment, and 
consumption effects, the influence of these proposals on each 
of these components of growth and the economy can be seen in 
more detail.
            2. Effects on the capital stock
    Tables 3 and 4, respectively, show the projected effects of 
the bill on business and housing capital stock. As discussed 
above, by increasing the after-tax rate of return for qualified 
capital--primarily equipment--the bill provides an incentive 
for increased investment in that capital. As shown in Table 3, 
this is projected to result in an increase in business capital 
stock relative to present law of up to 1.4 percent during the 
2020-2024 period, and up to 1.0 percent on average over the 
ten-year budget period. In the MEG simulations, the size of the 
projected increase depends on how sensitive the savings 
response is to the incentive, and on whether the Fed acts to 
offset reduced consumption that results from the savings 
response.
    Structures are not eligible for the 50-percent expensing 
provided in the bill. Therefore, the bill provides an incentive 
for some substitution away from investment in housing toward 
investment in business capital. Table 4 shows that the bill is 
projected to result in a 0.1 percent decrease in owner-occupied 
and rental housing units, referred to as ``housing stock.''

                    TABLE 3.--PERCENT CHANGE IN REAL BUSINESS CAPITAL RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal       Fiscal       Fiscal
                                                                           Years  2015- Years  2020- Years  2015-
                                                                               2019         2024         2024
----------------------------------------------------------------------------------------------------------------
MEG:
    Default Savings Elasticity............  Aggressive Fed...............         0.4%         0.8%         0.6%
                                            Neutral Fed..................         0.4%         0.8%         0.6%
    High Savings Elasticity...............  Aggressive Fed...............         0.5%         1.0%         0.8%
                                            Neutral Fed..................         0.4%         0.9%         0.7%
OLG:
    Concurrent fiscal balance.............  .............................         0.5%         1.4%         1.0%
    Delayed fiscal balance................  .............................         0.5%         1.4%         0.9%
----------------------------------------------------------------------------------------------------------------


                  TABLE 4.--PERCENT CHANGE IN REAL RESIDENTIAL CAPITAL RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal       Fiscal       Fiscal
                                                                           Years  2015- Years  2020- Years  2015-
                                                                               2019         2024         2024
----------------------------------------------------------------------------------------------------------------
MEG:
    Default Savings Elasticity............  Aggressive Fed...............        -0.1%        -0.1%        -0.1%
                                            Neutral Fed..................        -0.1%        -0.1%        -0.1%
    High Savings Elasticity...............  Aggressive Fed...............        -0.1%        -0.1%        -0.1%
                                            Neutral Fed..................        -0.1%        -0.1%        -0.1%
OLG:
    Concurrent fiscal balance.............  .............................        -0.1%        -0.1%        -0.1%
    Delayed fiscal balance................  .............................        -0.1%        -0.1%        -0.1%
----------------------------------------------------------------------------------------------------------------

            3. Effects on private sector employment
    The increase in business capital generated by the bill can 
be expected, over time, to generate an increase in demand for 
labor by increasing productivity and wage rates. Because the 
projected changes in capital stock are relatively modest, these 
induced effects on labor force participation and employment are 
also projected to be modest--less than 0.05 percent, as 
illustrated in Table 6.

                  TABLE 6.--PERCENT CHANGE IN LABOR FORCE PARTICIPATION RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal       Fiscal       Fiscal
                                                                           Years  2015- Years  2020- Years  2015-
                                                                               2019         2024         2024
----------------------------------------------------------------------------------------------------------------
MEG:
    Default Savings Elasticity............  Aggressive Fed...............          (1)          (1)          (1)
                                            Neutral Fed..................          (1)          (1)          (1)
    High Savings Elasticity...............  Aggressive Fed...............          (1)          (1)          (1)
                                            Neutral Fed..................          (1)          (1)          (1)
OLG:
    Concurrent fiscal balance.............  .............................          (1)          (1)          (1)
    Delayed fiscal balance................  .............................          (1)          (1)         (1)
----------------------------------------------------------------------------------------------------------------
(1) Indicates an increase of less than 0.05 percent


                  TABLE 7.--PERCENT CHANGE IN PRIVATE SECTOR EMPLOYMENT RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal       Fiscal       Fiscal
                                                                           Years  2015- Years  2020- Years  2015-
                                                                               2019         2024         2024
----------------------------------------------------------------------------------------------------------------
MEG:
    Default Savings Elasticity............  Aggressive Fed...............          (1)          (1)          (1)
                                            Neutral Fed..................          (1)          (1)          (1)
    High Savings Elasticity...............  Aggressive Fed...............          (1)          (1)          (1)
                                            Neutral Fed..................          (2)          (2)          (2)
OLG:
    Concurrent fiscal balance.............  .............................          (1)          (1)          (1)
    Delayed fiscal balance................  .............................          (1)          (1)         (1)
----------------------------------------------------------------------------------------------------------------
(1) Indicates an increase of less than 0.05 percent
(2) Indicates a decrease of less than 0.05 percent

    Table 7 shows changes in employment predicted to result 
from the proposal. While the willingness of people to work at a 
given combination of wage rates and taxes on wages is an 
important component of total employment, changes in employment 
are also influenced by the amount of business demand for labor. 
In the OLG model, which does not model less than full 
employment of resources, labor supply and employment effects 
are equivalent. In the MEG model, which allows for less than 
full employment, they can be different. Thus, in the MEG 
simulation that combines a higher savings/lower consumption 
rate with a neutral Fed that does not act to counteract the 
reduced consumption effect, employment is projected to decline 
by a small amount relative to present law.
            4. Effects on consumption
    Table 8 shows how the proposal affects consumption relative 
to present law. In addition to the interaction between 
consumption demand and short-term economic growth, consumption 
is often of interest as an indicator of individuals' well-
being. Generally, increased growth facilitates more 
consumption. Because this bill is projected to increase growth 
by providing an incentive for people to increase savings and 
investment, which will lead to an increase in the business 
capital stock, the effect of the bill on consumption is 
expected to change over time. For a given level of income, an 
increase in the savings rate is equivalent to a decrease in the 
rate of consumption. In the first half of the budget period, 
the negative effect of the increase in savings on consumption 
is projected to outweigh the positive effect from income 
generated by investment, leading to a modest decline in 
consumption. As additions to the business capital stock 
accumulate over time, the accompanying increase in income is 
projected to lead to a net increase in consumption, by about 
0.1 percent relative to present law on average over the second 
half of the budget period. This effect occurs more quickly in 
the MEG model simulations than in the OLG simulations, as 
evidenced by a projected positive effect on average over the 
whole budget period in most of the MEG simulations, in contrast 
with a small net negative effect on average over the ten years 
in the OLG simulations.

                         TABLE 8.--PERCENT CHANGE IN CONSUMPTION RELATIVE TO PRESENT LAW
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal       Fiscal       Fiscal
                                                                           Years  2015- Years  2020- Years  2015-
                                                                               2019         2024         2024
----------------------------------------------------------------------------------------------------------------
MEG:
    Default Savings Elasticity............  Aggressive Fed...............          (2)         0.1%         0.1%
                                            Neutral Fed..................          (2)         0.1%         0.1%
    High Savings Elasticity...............
                                            Aggressive Fed...............          (2)         0.1%         0.1%
                                            Neutral Fed..................        -0.1%         0.1%          (1)
OLG:
    Concurrent fiscal balance.............  .............................        -0.1%         0.1%          (2)
    Delayed fiscal balance................  .............................        -0.1%         0.1%         (2)
----------------------------------------------------------------------------------------------------------------
(1) Indicates an increase of less than 0.05 percent
(2) Indicates a decrease of less than 0.05 percent

            Conclusion
    The 50-percent expensing of certain investment expenditures 
provided for in this bill increases the after-tax rate of 
return for investment in qualified expenditures, providing an 
incentive for increased investment in qualified capital. It 
also provides an incentive for some substitution away from 
housing investment toward qualified investment--mostly business 
equipment. Thus, the bill is expected to result in a small 
increase in business capital stock, and in GDP, relative to 
present law.

Appendix--key parameter assumptions

    The amount of taxpayer response to changes in tax policy is 
governed by how sensitive their work, consumption, and savings 
decisions are to changes in the after-tax rate of return to 
additional work or investment and to changes in their 
disposable income. Tables A-1 and A-2 below show the parameters 
used to model the degree of responsiveness for the MEG and OLG 
models respectively.

           Table A.1.--PARAMETER ASSUMPTIONS IN THE MEG MODEL
------------------------------------------------------------------------
                                                                 Low
  Labor supply elasticities in      Income    Substitution   Elasticity
   disaggregated labor supply                               Substitution
------------------------------------------------------------------------
Low income primary.............         -0.1           0.2          0.15
Other primary..................         -0.1           0.1           0.1
Low income secondary...........         -0.3           0.8           0.4
Other secondary................         -0.2           0.6           0.3
Wage-weighted population                -0.1           0.2           0.1
 average with average baseline
 rates.........................
------------------------------------------------------------------------
Savings/consumption parameters underlying lifecycle consumption function
------------------------------------------------------------------------
Rate of time preference........        0.015  ............  ............
Intertemporal elasticity of             0.35  ............  ............
 substitution-default..........
Derived long-run savings                0.25  ............  ............
 elasticity to the after-tax
 rate of return on capital--
 default.......................
Intertemporal elasticity of             0.45  ............  ............
 substitution-high.............
Derived long-run savings                0.29  ............  ............
 elasticity to the after-tax
 rate of return on capital--
 high..........................
------------------------------------------------------------------------


           TABLE A.2.--PARAMETER ASSUMPTIONS IN THE OLG MODEL
------------------------------------------------------------------------
                     Description                             Value
------------------------------------------------------------------------
Time preference......................................              0.015
Intertemporal elasticity of substitution.............                0.4
Intratemporal elasticity of substitution between                     0.6
 consumption and leisure.............................
Leisure share of time endowment......................                0.4
Population growth rate...............................               0.01
Technological growth rate............................              0.016
Capital share non-housing............................               0.25
Capital share housing................................              0.975
Adjustment cost (quadratic function).................                  5
------------------------------------------------------------------------

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 4718 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill, and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    The following statement is made pursuant to clause 3(h)(1) 
of rule XIII of the Rules of the House of Representatives. 
Section 4022(b) of the Internal Revenue Service Restructuring 
and Reform Act of 1998 (the ``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. For each such provision identified by the staff of 
the Joint Committee on Taxation a summary description of the 
provision is provided along with an estimate of the number and 
type of affected taxpayers, and a discussion regarding the 
relevant complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and Treasury regarding 
each of the provisions included in the complexity analysis.

           1. BONUS DEPRECIATION MODIFIED AND MADE PERMANENT

Summary description of the provisions

            Bonus depreciation
    The bill makes permanent the 50-percent additional first-
year depreciation deduction for qualified property.
    The bill expands the definition of qualified property to 
include qualified retail improvement property.
    The $8,000 increase amount in the limitation on the 
depreciation deductions allowed with respect to certain 
passenger automobiles is indexed for automobile price 
inflation. The increase does not apply to a taxpayer who elects 
to accelerate AMT credits for a taxable year.
    The bill also makes permanent the special rule for the 
allocation of bonus depreciation to a long-term contract, which 
provides that solely for purposes of determining the percentage 
of completion under section 460(b)(1)(A), the cost of qualified 
property with a MACRS recovery period of seven years or less is 
taken into account as a cost allocated to the contract as if 
bonus depreciation had not been enacted.
            Expansion of election to accelerate AMT credits in lieu of 
                    bonus depreciation
    The bill makes permanent and modifies the election to 
increase the AMT credit limitation in lieu of bonus 
depreciation. Under the bill, the bonus depreciation amount for 
a taxable year (as defined under present law with respect to 
all qualified property) is limited to the lesser of (1) 50 
percent of the minimum tax credit for the first taxable year 
ending after December 31, 2013 (determined before the 
application of any tax liability limitation), or (2) the 
minimum tax credit for the taxable year allocable to the 
adjusted net minimum tax imposed for taxable years ending 
before January 1, 2014 (determined before the application of 
any tax liability limitation and determined on a first-in, 
first-out basis).
    The bill also provides that in the case of a partnership 
having a single corporate partner owning (directly or 
indirectly) more than 50-percent capital and profits interests 
in the partnership, each partner takes into account its 
distributive share of partnership depreciation in determining 
its bonus depreciation amount.
            Special rules for trees and vines bearing fruits and nuts
    In addition, the bill allows a taxpayer to claim bonus 
depreciation on trees or vines bearing fruits or nuts, in the 
taxable year in which the tree or vine is planted, or grafted 
to a plant that has already been planted, by the taxpayer in 
the ordinary course of the taxpayer's farming business 
(notwithstanding that the tree or vine has not yet been placed 
in service in that year). The adjusted basis of the tree or 
vine is reduced by the amount of the deduction under this 
provision. Further, any amount deducted under this provision is 
not subject to capitalization under section 263A. A taxpayer 
may elect to have this provision not apply to trees or vines 
planted or grafted in that taxable year. If a taxpayer does not 
elect out of this provision, the tree or vine will not be 
eligible for bonus depreciation in the subsequent taxable year 
in which it is placed in service.

Number of affected taxpayers

    It is estimated that the provision will affect over ten 
percent of small business tax returns.

Discussion

    While taxpayers placing in service qualified property will 
still be required to complete and file Form 4562, Depreciation 
and Amortization (Including Information on Listed Property), 
significantly less detail is required to be included on such 
form. Accordingly, the compliance burden of many taxpayers will 
be reduced.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(j)(2) of H. Res. 5 (113th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169). The Committee also states that the Government 
Accountability Office has included bonus depreciation in a 
report to Congress pursuant to section 21 of Public Law 111-
139.

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(k) of H. Res. 5 (113th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no more 
than one directed rule making within the meaning of such 
section; whether or not the bill requires a directed rule 
making is ambiguous because the bill directs the Secretary to 
increase the applicable depreciation limitation for passenger 
vehicles under section 280F by $8,000 for purposes of 
calculating allowable bonus depreciation but without reference 
to a specific rule making.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *



SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Classification of Property.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (8) Qualified retail improvement property.--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(D) Exclusion from bonus depreciation.--
                Property described in this paragraph shall not 
                be considered qualified property for purposes 
                of subsection (k).]

           *       *       *       *       *       *       *

  (k) Special Allowance for Certain Property [Acquired After 
December 31, 2007, and Before January 1, 2014].--
          (1) * * *
          [(2) Qualified property.--For purposes of this 
        subsection--
                  [(A) In general.--The term ``qualified 
                property'' means property--
                          [(i)(I) to which this section applies 
                        which has a recovery period of 20 years 
                        or less,
                                  [(II) which is computer 
                                software (as defined in section 
                                167(f)(1)(B)) for which a 
                                deduction is allowable under 
                                section 167(a) without regard 
                                to this subsection,
                                  [(III) which is water utility 
                                property, or
                                  [(IV) which is qualified 
                                leasehold improvement property,
                          [(ii) the original use of which 
                        commences with the taxpayer after 
                        December 31, 2007,
                          [(iii) which is--
                                  [(I) acquired by the taxpayer 
                                after December 31, 2007, and 
                                before January 1, 2014, but 
                                only if no written binding 
                                contract for the acquisition 
                                was in effect before January 1, 
                                2008, or
                                  [(II) acquired by the 
                                taxpayer pursuant to a written 
                                binding contract which was 
                                entered into after December 31, 
                                2007, and before January 1, 
                                2014, and
                          [(iv) which is placed in service by 
                        the taxpayer before January 1, 2014, 
                        or, in the case of property described 
                        in subparagraph (B) or (C), before 
                        January 1, 2015.
                  [(B) Certain property having longer 
                production periods treated as qualified 
                property.--
                          [(i) In general.--The term 
                        ``qualified property'' includes any 
                        property if such property--
                                  [(I) meets the requirements 
                                of clauses (i), (ii), (iii), 
                                and (iv) of subparagraph (A),
                                  [(II) has a recovery period 
                                of at least 10 years or is 
                                transportation property,
                                  [(III) is subject to section 
                                263A, and
                                  [(IV) meets the requirements 
                                of clause (iii) of section 
                                263A(f)(1)(B) (determined as if 
                                such clauses also apply to 
                                property which has a long 
                                useful life (within the meaning 
                                of section 263A(f))).
                          [(ii) Only pre-January 1, 2014, basis 
                        eligible for additional allowance.--In 
                        the case of property which is qualified 
                        property solely by reason of clause 
                        (i), paragraph (1) shall apply only to 
                        the extent of the adjusted basis 
                        thereof attributable to manufacture, 
                        construction, or production before 
                        January 1, 2014.
                          [(iii) Transportation property.--For 
                        purposes of this subparagraph, the term 
                        ``transportation property'' means 
                        tangible personal property used in the 
                        trade or business of transporting 
                        persons or property.
                          [(iv) Application of subparagraph.--
                        This subparagraph shall not apply to 
                        any property which is described in 
                        subparagraph (C).
                  [(C) Certain aircraft.--The term ``qualified 
                property'' includes property--
                          [(i) which meets the requirements of 
                        clauses (ii), (iii), and (iv) of 
                        subparagraph (A),
                          [(ii) which is an aircraft which is 
                        not a transportation property (as 
                        defined in subparagraph (B)(iii)) other 
                        than for agricultural or firefighting 
                        purposes,
                          [(iii) which is purchased and on 
                        which such purchaser, at the time of 
                        the contract for purchase, has made a 
                        nonrefundable deposit of the lesser 
                        of--
                                  [(I) 10 percent of the cost, 
                                or
                                  [(II) $100,000, and
                          [(iv) which has--
                                  [(I) an estimated production 
                                period exceeding 4 months, and
                                  [(II) a cost exceeding 
                                $200,000.
                  [(D) Exceptions.--
                          [(i) Alternative depreciation 
                        property.--The term ``qualified 
                        property'' shall not include any 
                        property to which the alternative 
                        depreciation system under subsection 
                        (g) applies, determined--
                                  [(I) without regard to 
                                paragraph (7) of subsection (g) 
                                (relating to election to have 
                                system apply), and
                                  [(II) after application of 
                                section 280F(b) (relating to 
                                listed property with limited 
                                business use).
                          [(ii) Qualified New York Liberty Zone 
                        leasehold improvement property.--The 
                        term ``qualified property'' shall not 
                        include any qualified New York Liberty 
                        Zone leasehold improvement property (as 
                        defined in section 1400L(c)(2)).
                          [(iii) Election out.--If a taxpayer 
                        makes an election under this clause 
                        with respect to any class of property 
                        for any taxable year, this subsection 
                        shall not apply to all property in such 
                        class placed in service during such 
                        taxable year.
                  [(E) Special rules.--
                          [(i) Self-constructed property.--In 
                        the case of a taxpayer manufacturing, 
                        constructing, or producing property for 
                        the taxpayer's own use, the 
                        requirements of clause (iii) of 
                        subparagraph (A) shall be treated as 
                        met if the taxpayer begins 
                        manufacturing, constructing, or 
                        producing the property after December 
                        31, 2007, and before January 1, 2014.
                          [(ii) Sale-leasebacks.--For purposes 
                        of clause (iii) and subparagraph 
                        (A)(ii), if property is--
                                  [(I) originally placed in 
                                service after December 31, 
                                2007, by a person, and
                                  [(II) sold and leased back by 
                                such person within 3 months 
                                after the date such property 
                                was originally placed in 
                                service,
                        such property shall be treated as 
                        originally placed in service not 
                        earlier than the date on which such 
                        property is used under the leaseback 
                        referred to in subclause (II).
                          [(iii) Syndication.--For purposes of 
                        subparagraph (A)(ii), if--
                                  [(I) property is originally 
                                placed in service after 
                                December 31, 2007, by the 
                                lessor of such property,
                                  [(II) such property is sold 
                                by such lessor or any 
                                subsequent purchaser within 3 
                                months after the date such 
                                property was originally placed 
                                in service (or, in the case of 
                                multiple units of property 
                                subject to the same lease, 
                                within 3 months after the date 
                                the final unit is placed in 
                                service, so long as the period 
                                between the time the first unit 
                                is placed in service and the 
                                time the last unit is placed in 
                                service does not exceed 12 
                                months), and
                                  [(III) the user of such 
                                property after the last sale 
                                during such 3-month period 
                                remains the same as when such 
                                property was originally placed 
                                in service,
                        such property shall be treated as 
                        originally placed in service not 
                        earlier than the date of such last 
                        sale.
                          [(iv) Limitations related to users 
                        and related parties.--The term 
                        ``qualified property'' shall not 
                        include any property if--
                                  [(I) the user of such 
                                property (as of the date on 
                                which such property is 
                                originally placed in service) 
                                or a person which is related 
                                (within the meaning of section 
                                267(b) or 707(b)) to such user 
                                or to the taxpayer had a 
                                written binding contract in 
                                effect for the acquisition of 
                                such property at any time on or 
                                before December 31, 2007, or
                                  [(II) in the case of property 
                                manufactured, constructed, or 
                                produced for such user's or 
                                person's own use, the 
                                manufacture, construction, or 
                                production of such property 
                                began at any time on or before 
                                December 31, 2007.
                  [(F) Coordination with section 280F.--For 
                purposes of section 280F--
                          [(i) Automobiles.--In the case of a 
                        passenger automobile (as defined in 
                        section 280F(d)(5)) which is qualified 
                        property, the Secretary shall increase 
                        the limitation under section 
                        280F(a)(1)(A)(i) by $8,000.
                          [(ii) Listed property.--The deduction 
                        allowable under paragraph (1) shall be 
                        taken into account in computing any 
                        recapture amount under section 
                        280F(b)(2).
                  [(G) Deduction allowed in computing minimum 
                tax.--For purposes of determining alternative 
                minimum taxable income under section 55, the 
                deduction under subsection (a) for qualified 
                property shall be determined under this section 
                without regard to any adjustment under section 
                56.]
          (2) Qualified property.--For purposes of this 
        subsection--
                  (A) In general.--The term ``qualified 
                property'' means property--
                          (i)(I) to which this section applies 
                        which has a recovery period of 20 years 
                        or less,
                          (II) which is computer software (as 
                        defined in section 167(f)(1)(B)) for 
                        which a deduction is allowable under 
                        section 167(a) without regard to this 
                        subsection,
                          (III) which is water utility 
                        property,
                          (IV) which is qualified leasehold 
                        improvement property, or
                          (V) which is qualified retail 
                        improvement property, and
                          (ii) the original use of which 
                        commences with the taxpayer.
                  (B) Exception for alternative depreciation 
                property.--The term ``qualified property'' 
                shall not include any property to which the 
                alternative depreciation system under 
                subsection (g) applies, determined--
                          (i) without regard to paragraph (7) 
                        of subsection (g) (relating to election 
                        to have system apply), and
                          (ii) after application of section 
                        280F(b) (relating to listed property 
                        with limited business use).
                  (C) Special rules.--
                          (i) Sale-leasebacks.--For purposes of 
                        clause (ii) and subparagraph (A)(ii), 
                        if property is--
                                  (I) originally placed in 
                                service by a person, and
                                  (II) sold and leased back by 
                                such person within 3 months 
                                after the date such property 
                                was originally placed in 
                                service,
                        such property shall be treated as 
                        originally placed in service not 
                        earlier than the date on which such 
                        property is used under the leaseback 
                        referred to in subclause (II).
                          (ii) Syndication.--For purposes of 
                        subparagraph (A)(ii), if--
                                  (I) property is originally 
                                placed in service by the lessor 
                                of such property,
                                  (II) such property is sold by 
                                such lessor or any subsequent 
                                purchaser within 3 months after 
                                the date such property was 
                                originally placed in service 
                                (or, in the case of multiple 
                                units of property subject to 
                                the same lease, within 3 months 
                                after the date the final unit 
                                is placed in service, so long 
                                as the period between the time 
                                the first unit is placed in 
                                service and the time the last 
                                unit is placed in service does 
                                not exceed 12 months), and
                                  (III) the user of such 
                                property after the last sale 
                                during such 3-month period 
                                remains the same as when such 
                                property was originally placed 
                                in service,
                        such property shall be treated as 
                        originally placed in service not 
                        earlier than the date of such last 
                        sale.
                  (D) Coordination with section 280F.--For 
                purposes of section 280F--
                          (i) Automobiles.--In the case of a 
                        passenger automobile (as defined in 
                        section 280F(d)(5)) which is qualified 
                        property, the Secretary shall increase 
                        the limitation under section 
                        280F(a)(1)(A)(i) by $8,000.
                          (ii) Listed property.--The deduction 
                        allowable under paragraph (1) shall be 
                        taken into account in computing any 
                        recapture amount under section 
                        280F(b)(2).
                          (iii) Inflation adjustment.--In the 
                        case of any taxable year beginning in a 
                        calendar year after 2014, the $8,000 
                        amount in clause (i) shall be increased 
                        by an amount equal to--
                                  (I) such dollar amount, 
                                multiplied by
                                  (II) the automobile price 
                                inflation adjustment determined 
                                under section 280F(d)(7)(B)(i) 
                                for the calendar year in which 
                                such taxable year begins by 
                                substituting ``2013'' for 
                                ``1987'' in subclause (II) 
                                thereof.
                         If any increase under the preceding 
                        sentence is not a multiple of $100, 
                        such increase shall be rounded to the 
                        nearest multiple of $100.
                  (E) Deduction allowed in computing minimum 
                tax.--For purposes of determining alternative 
                minimum taxable income under section 55, the 
                deduction under section 167 for qualified 
                property shall be determined without regard to 
                any adjustment under section 56.

           *       *       *       *       *       *       *

          [(4) Election to accelerate the AMT and research 
        credits in lieu of bonus depreciation.--
                  [(A) In general.--If a corporation elects to 
                have this paragraph apply for the first taxable 
                year of the taxpayer ending after March 31, 
                2008, in the case of such taxable year and each 
                subsequent taxable year--
                          [(i) paragraph (1) shall not apply to 
                        any eligible qualified property placed 
                        in service by the taxpayer,
                          [(ii) the applicable depreciation 
                        method used under this section with 
                        respect to such property shall be the 
                        straight line method, and
                          [(iii) each of the limitations 
                        described in subparagraph (B) for any 
                        such taxable year shall be increased by 
                        the bonus depreciation amount which 
                        is--
                                  [(I) determined for such 
                                taxable year under subparagraph 
                                (C), and
                                  [(II) allocated to such 
                                limitation under subparagraph 
                                (E).
                  [(B) Limitations to be increased.--The 
                limitations described in this subparagraph 
                are--
                          [(i) the limitation imposed by 
                        section 38(c), and
                          [(ii) the limitation imposed by 
                        section 53(c).
                  [(C) Bonus depreciation amount.--For purposes 
                of this paragraph--
                          [(i) In general.--The bonus 
                        depreciation amount for any taxable 
                        year is an amount equal to 20 percent 
                        of the excess (if any) of--
                                  [(I) the aggregate amount of 
                                depreciation which would be 
                                allowed under this section for 
                                eligible qualified property 
                                placed in service by the 
                                taxpayer during such taxable 
                                year if paragraph (1) applied 
                                to all such property, over
                                  [(II) the aggregate amount of 
                                depreciation which would be 
                                allowed under this section for 
                                eligible qualified property 
                                placed in service by the 
                                taxpayer during such taxable 
                                year if paragraph (1) did not 
                                apply to any such property.
                        The aggregate amounts determined under 
                        subclauses (I) and (II) shall be 
                        determined without regard to any 
                        election made under subsection 
                        (b)(2)(C), (b)(3)(D), or (g)(7) and 
                        without regard to subparagraph (A)(ii).
                          [(ii) Maximum amount.--The bonus 
                        depreciation amount for any taxable 
                        year shall not exceed the maximum 
                        increase amount under clause (iii), 
                        reduced (but not below zero) by the sum 
                        of the bonus depreciation amounts for 
                        all preceding taxable years.
                          [(iii) Maximum increase amount.--For 
                        purposes of clause (ii), the term 
                        ``maximum increase amount'' means, with 
                        respect to any corporation, the lesser 
                        of--
                                  [(I) $30,000,000, or
                                  [(II) 6 percent of the sum of 
                                the business credit increase 
                                amount, and the AMT credit 
                                increase amount, determined 
                                with respect to such 
                                corporation under subparagraph 
                                (E).
                          [(iv) Aggregation rule.--All 
                        corporations which are treated as a 
                        single employer under section 52(a) 
                        shall be treated--
                                  [(I) as 1 taxpayer for 
                                purposes of this paragraph, and
                                  [(II) as having elected the 
                                application of this paragraph 
                                if any such corporation so 
                                elects.
                  [(D) Eligible qualified property.--For 
                purposes of this paragraph, the term ``eligible 
                qualified property'' means qualified property 
                under paragraph (2), except that in applying 
                paragraph (2) for purposes of this paragraph--
                          [(i) ``March 31, 2008'' shall be 
                        substituted for ``December 31, 2007'' 
                        each place it appears in subparagraph 
                        (A) and clauses (i) and (ii) of 
                        subparagraph (E) thereof,
                          [(ii) ``April 1, 2008'' shall be 
                        substituted for ``January 1, 2008'' in 
                        subparagraph (A)(iii)(I) thereof, and
                          [(iii) only adjusted basis 
                        attributable to manufacture, 
                        construction, or production--
                                  [(I) after March 31, 2008, 
                                and before January 1, 2010, and
                                  [(II) after December 31, 
                                2010, and before January 1, 
                                2014, shall be taken into 
                                account under subparagraph 
                                (B)(ii) thereof.
                  [(E) Allocation of bonus depreciation 
                amounts.--
                          [(i) In general.--Subject to clauses 
                        (ii) and (iii), the taxpayer shall, at 
                        such time and in such manner as the 
                        Secretary may prescribe, specify the 
                        portion (if any) of the bonus 
                        depreciation amount for the taxable 
                        year which is to be allocated to each 
                        of the limitations described in 
                        subparagraph (B) for such taxable year.
                          [(ii) Limitation on allocations.--The 
                        portion of the bonus depreciation 
                        amount which may be allocated under 
                        clause (i) to the limitations described 
                        in subparagraph (B) for any taxable 
                        year shall not exceed--
                                  [(I) in the case of the 
                                limitation described in 
                                subparagraph (B)(i), the excess 
                                of the business credit increase 
                                amount over the bonus 
                                depreciation amount allocated 
                                to such limitation for all 
                                preceding taxable years, and
                                  [(II) in the case of the 
                                limitation described in 
                                subparagraph (B)(ii), the 
                                excess of the AMT credit 
                                increase amount over the bonus 
                                depreciation amount allocated 
                                to such limitation for all 
                                preceding taxable years.
                          [(iii) Business credit increase 
                        amount.--For purposes of this 
                        paragraph, the term ``business credit 
                        increase amount'' means the amount 
                        equal to the portion of the credit 
                        allowable under section 38 (determined 
                        without regard to subsection (c) 
                        thereof) for the first taxable year 
                        ending after March 31, 2008, which is 
                        allocable to business credit 
                        carryforwards to such taxable year 
                        which are--
                                  [(I) from taxable years 
                                beginning before January 1, 
                                2006, and
                                  [(II) properly allocable 
                                (determined under the rules of 
                                section 38(d)) to the research 
                                credit determined under section 
                                41(a).
                          [(iv) AMT credit increase amount.--
                        For purposes of this paragraph, the 
                        term ``AMT credit increase amount'' 
                        means the amount equal to the portion 
                        of the minimum tax credit under section 
                        53(b) for the first taxable year ending 
                        after March 31, 2008, determined by 
                        taking into account only the adjusted 
                        minimum tax for taxable years beginning 
                        before January 1, 2006. For purposes of 
                        the preceding sentence, credits shall 
                        be treated as allowed on a first-in, 
                        first- out basis.
                  [(F) Credit refundable.--For purposes of 
                section 6401(b), the aggregate increase in the 
                credits allowable under part IV of subchapter A 
                for any taxable year resulting from the 
                application of this paragraph shall be treated 
                as allowed under subpart C of such part (and 
                not any other subpart).
                  [(G) Other rules.--
                          [(i) Election.--Any election under 
                        this paragraph (including any 
                        allocation under subparagraph (E)) may 
                        be revoked only with the consent of the 
                        Secretary.
                          [(ii) Partnerships with electing 
                        partners.--In the case of a corporation 
                        making an election under subparagraph 
                        (A) and which is a partner in a 
                        partnership, for purposes of 
                        determining such corporation's 
                        distributive share of partnership items 
                        under section 702--
                                  [(I) paragraph (1) shall not 
                                apply to any eligible qualified 
                                property, and
                                  [(II) the applicable 
                                depreciation method used under 
                                this section with respect to 
                                such property shall be the 
                                straight line method.
                          [(iii) Special rule for passenger 
                        aircraft.--In the case of any passenger 
                        aircraft, the written binding contract 
                        limitation under paragraph 
                        (2)(A)(iii)(I) shall not apply for 
                        purposes of subparagraphs (C)(i)(I) and 
                        (D).
                  [(H) Special rules for extension property.--
                          [(i) Taxpayers previously electing 
                        acceleration.--In the case of a 
                        taxpayer who made the election under 
                        subparagraph (A) for its first taxable 
                        year ending after March 31, 2008--
                                  [(I) the taxpayer may elect 
                                not to have this paragraph 
                                apply to extension property, 
                                but
                                  [(II) if the taxpayer does 
                                not make the election under 
                                subclause (I), in applying this 
                                paragraph to the taxpayer a 
                                separate bonus depreciation 
                                amount, maximum amount, and 
                                maximum increase amount shall 
                                be computed and applied to 
                                eligible qualified property 
                                which is extension property and 
                                to eligible qualified property 
                                which is not extension 
                                property.
                          [(ii) Taxpayers not previously 
                        electing acceleration.--In the case of 
                        a taxpayer who did not make the 
                        election under subparagraph (A) for its 
                        first taxable year ending after March 
                        31, 2008--
                                  [(I) the taxpayer may elect 
                                to have this paragraph apply to 
                                its first taxable year ending 
                                after December 31, 2008, and 
                                each subsequent taxable year, 
                                and
                                  [(II) if the taxpayer makes 
                                the election under subclause 
                                (I), this paragraph shall only 
                                apply to eligible qualified 
                                property which is extension 
                                property.
                          [(iii) Extension property.--For 
                        purposes of this subparagraph, the term 
                        ``extension property'' means property 
                        which is eligible qualified property 
                        solely by reason of the extension of 
                        the application of the special 
                        allowance under paragraph (1) pursuant 
                        to the amendments made by section 
                        1201(a) of the American Recovery and 
                        Reinvestment Tax Act of 2009 (and the 
                        application of such extension to this 
                        paragraph pursuant to the amendment 
                        made by section 1201(b)(1) of such 
                        Act).
                  [(I) Special rules for round 2 extension 
                property.--
                          [(i) In general.--In the case of 
                        round 2 extension property, this 
                        paragraph shall be applied without 
                        regard to--
                                  [(I) the limitation described 
                                in subparagraph (B)(i) thereof, 
                                and
                                  [(II) the business credit 
                                increase amount under 
                                subparagraph (E)(iii) thereof.
                          [(ii) Taxpayers previously electing 
                        acceleration.--In the case of a 
                        taxpayer who made the election under 
                        subparagraph (A) for its first taxable 
                        year ending after March 31, 2008, or a 
                        taxpayer who made the election under 
                        subparagraph (H)(ii) for its first 
                        taxable year ending after December 31, 
                        2008--
                                  [(I) the taxpayer may elect 
                                not to have this paragraph 
                                apply to round 2 extension 
                                property, but
                                  [(II) if the taxpayer does 
                                not make the election under 
                                subclause (I), in applying this 
                                paragraph to the taxpayer the 
                                bonus depreciation amount, 
                                maximum amount, and maximum 
                                increase amount shall be 
                                computed and applied to 
                                eligible qualified property 
                                which is round 2 extension 
                                property.
                        The amounts described in subclause (II) 
                        shall be computed separately from any 
                        amounts computed with respect to 
                        eligible qualified property which is 
                        not round 2 extension property.
                          [(iii) Taxpayers not previously 
                        electing acceleration.--In the case of 
                        a taxpayer who neither made the 
                        election under subparagraph (A) for its 
                        first taxable year ending after March 
                        31, 2008, nor made the election under 
                        subparagraph (H)(ii) for its first 
                        taxable year ending after December 31, 
                        2008--
                                  [(I) the taxpayer may elect 
                                to have this paragraph apply to 
                                its first taxable year ending 
                                after December 31, 2010, and 
                                each subsequent taxable year, 
                                and
                                  [(II) if the taxpayer makes 
                                the election under subclause 
                                (I), this paragraph shall only 
                                apply to eligible qualified 
                                property which is round 2 
                                extension property.
                          [(iv) Round 2 extension property.--
                        For purposes of this subparagraph, the 
                        term ``round 2 extension property'' 
                        means property which is eligible 
                        qualified property solely by reason of 
                        the extension of the application of the 
                        special allowance under paragraph (1) 
                        pursuant to the amendments made by 
                        section 401(a) of the Tax Relief, 
                        Unemployment Insurance Reauthorization, 
                        and Job Creation Act of 2010 (and the 
                        application of such extension to this 
                        paragraph pursuant to the amendment 
                        made by section 401(c)(1) of such Act).
                  [(J) Special rules for round 3 extension 
                property.--
                          [(i) In general.--In the case of 
                        round 3 extension property, this 
                        paragraph shall be applied without 
                        regard to--
                                  [(I) the limitation described 
                                in subparagraph (B)(i) thereof, 
                                and
                                  [(II) the business credit 
                                increase amount under 
                                subparagraph (E)(iii) thereof.
                          [(ii) Taxpayers previously electing 
                        acceleration.--In the case of a 
                        taxpayer who made the election under 
                        subparagraph (A) for its first taxable 
                        year ending after March 31, 2008, a 
                        taxpayer who made the election under 
                        subparagraph (H)(ii) for its first 
                        taxable year ending after December 31, 
                        2008, or a taxpayer who made the 
                        election under subparagraph (I)(iii) 
                        for its first taxable year ending after 
                        December 31, 2010--
                                  [(I) the taxpayer may elect 
                                not to have this paragraph 
                                apply to round 3 extension 
                                property, but
                                  [(II) if the taxpayer does 
                                not make the election under 
                                subclause (I), in applying this 
                                paragraph to the taxpayer the 
                                bonus depreciation amount, 
                                maximum amount, and maximum 
                                increase amount shall be 
                                computed and applied to 
                                eligible qualified property 
                                which is round 3 extension 
                                property.
                        The amounts described in subclause (II) 
                        shall be computed separately from any 
                        amounts computed with respect to 
                        eligible qualified property which is 
                        not round 3 extension property.
                          [(iii) Taxpayers not previously 
                        electing acceleration.--In the case of 
                        a taxpayer who neither made the 
                        election under subparagraph (A) for its 
                        first taxable year ending after March 
                        31, 2008, nor made the election under 
                        subparagraph (H)(ii) for its first 
                        taxable year ending after December 31, 
                        2008, nor made the election under 
                        subparagraph (I)(iii) for any taxable 
                        year ending after December 31, 2010--
                                  [(I) the taxpayer may elect 
                                to have this paragraph apply to 
                                its first taxable year ending 
                                after December 31, 2012, and 
                                each subsequent taxable year, 
                                and
                                  [(II) if the taxpayer makes 
                                the election under subclause 
                                (I), this paragraph shall only 
                                apply to eligible qualified 
                                property which is round 3 
                                extension property.
                          [(iv) Round 3 extension property.--
                        For purposes of this subparagraph, the 
                        term ``round 3 extension property'' 
                        means property which is eligible 
                        qualified property solely by reason of 
                        the extension of the application of the 
                        special allowance under paragraph (1) 
                        pursuant to the amendments made by 
                        section 331(a) of the American Taxpayer 
                        Relief Act of 2012 (and the application 
                        of such extension to this paragraph 
                        pursuant to the amendment made by 
                        section 331(c)(1) of such Act).
          [(5) Special rule for property acquired during 
        certain pre-2012 periods.--In the case of qualified 
        property acquired by the taxpayer (under rules similar 
        to the rules of clauses (ii) and (iii) of paragraph 
        (2)(A)) after September 8, 2010, and before January 1, 
        2012, and which is placed in service by the taxpayer 
        before January 1, 2012 (January 1, 2013, in the case of 
        property described in subparagraph (2)(B) or (2)(C)), 
        paragraph (1)(A) shall be applied by substituting ``100 
        percent'' for ``50 percent''.]
          (4) Election to accelerate amt credits in lieu of 
        bonus depreciation.--
                  (A) In general.--If a corporation elects to 
                have this paragraph apply for any taxable 
                year--
                          (i) paragraphs (1)(A), (2)(D)(i), and 
                        (5)(A)(i) shall not apply for such 
                        taxable year,
                          (ii) the applicable depreciation 
                        method used under this section with 
                        respect to any qualified property shall 
                        be the straight line method, and
                          (iii) the limitation imposed by 
                        section 53(c) for such taxable year 
                        shall be increased by the bonus 
                        depreciation amount which is determined 
                        for such taxable year under 
                        subparagraph (B).
                  (B) Bonus depreciation amount.--For purposes 
                of this paragraph--
                          (i) In general.--The bonus 
                        depreciation amount for any taxable 
                        year is an amount equal to 20 percent 
                        of the excess (if any) of--
                                  (I) the aggregate amount of 
                                depreciation which would be 
                                allowed under this section for 
                                qualified property placed in 
                                service by the taxpayer during 
                                such taxable year if paragraph 
                                (1) applied to all such 
                                property, over
                                  (II) the aggregate amount of 
                                depreciation which would be 
                                allowed under this section for 
                                qualified property placed in 
                                service by the taxpayer during 
                                such taxable year if paragraph 
                                (1) did not apply to any such 
                                property.
                        The aggregate amounts determined under 
                        subclauses (I) and (II) shall be 
                        determined without regard to any 
                        election made under subsection 
                        (b)(2)(D), (b)(3)(D), or (g)(7) and 
                        without regard to subparagraph (A)(ii).
                          (ii) Limitation.--The bonus 
                        depreciation amount for any taxable 
                        year shall not exceed the lesser of--
                                  (I) 50 percent of the minimum 
                                tax credit under section 53(b) 
                                for the first taxable year 
                                ending after December 31, 2013, 
                                or
                                  (II) the minimum tax credit 
                                under section 53(b) for such 
                                taxable year determined by 
                                taking into account only the 
                                adjusted net minimum tax for 
                                taxable years ending before 
                                January 1, 2014 (determined by 
                                treating credits as allowed on 
                                a first-in, first-out basis).
                          (iii) Aggregation rule.--All 
                        corporations which are treated as a 
                        single employer under section 52(a) 
                        shall be treated--
                                  (I) as 1 taxpayer for 
                                purposes of this paragraph, and
                                  (II) as having elected the 
                                application of this paragraph 
                                if any such corporation so 
                                elects.
                  (C) Credit refundable.--For purposes of 
                section 6401(b), the aggregate increase in the 
                credits allowable under part IV of subchapter A 
                for any taxable year resulting from the 
                application of this paragraph shall be treated 
                as allowed under subpart C of such part (and 
                not any other subpart).
                  (D) Other rules.--
                          (i) Election.--Any election under 
                        this paragraph may be revoked only with 
                        the consent of the Secretary.
                          (ii) Partnerships with electing 
                        partners.--In the case of a corporation 
                        which is a partner in a partnership and 
                        which makes an election under 
                        subparagraph (A) for the taxable year, 
                        for purposes of determining such 
                        corporation's distributive share of 
                        partnership items under section 702 for 
                        such taxable year--
                                  (I) paragraphs (1)(A), 
                                (2)(D)(i), and (5)(A)(i) shall 
                                not apply, and
                                  (II) the applicable 
                                depreciation method used under 
                                this section with respect to 
                                any qualified property shall be 
                                the straight line method.
                          (iii) Certain partnerships.--In the 
                        case of a partnership in which more 
                        than 50 percent of the capital and 
                        profits interests are owned (directly 
                        or indirectly) at all times during the 
                        taxable year by 1 corporation (or by 
                        corporations treated as 1 taxpayer 
                        under subparagraph (B)(iii)), each 
                        partner shall compute its bonus 
                        depreciation amount under clause (i) of 
                        subparagraph (B) by taking into account 
                        its distributive share of the amounts 
                        determined by the partnership under 
                        subclauses (I) and (II) of such clause 
                        for the taxable year of the partnership 
                        ending with or within the taxable year 
                        of the partner.
          (5) Special rules for trees and vines bearing fruits 
        and nuts.--
                  (A) In general.--In the case of any tree or 
                vine bearing fruits or nuts which is planted, 
                or is grafted to a plant that has already been 
                planted, by the taxpayer in the ordinary course 
                of the taxpayer's farming business (as defined 
                in section 263A(e)(4))--
                          (i) a depreciation deduction equal to 
                        50 percent of the adjusted basis of 
                        such tree or vine shall be allowed 
                        under section 167(a) for the taxable 
                        year in which such tree or vine is so 
                        planted or grafted, and
                          (ii) the adjusted basis of such tree 
                        or vine shall be reduced by the amount 
                        of such deduction.
                  (B) Election out.--If a taxpayer makes an 
                election under this subparagraph for any 
                taxable year, this paragraph shall not apply to 
                any tree or vine planted or grafted during such 
                taxable year. An election under this 
                subparagraph may be revoked only with the 
                consent of the Secretary.
                  (C) Additional depreciation may be claimed 
                only once.--If this paragraph applies to any 
                tree or vine, such tree or vine shall not be 
                treated as qualified property in the taxable 
                year in which placed in service.
                  (D) Coordination with election to accelerate 
                AMT credits.--If a corporation makes an 
                election under paragraph (4) for any taxable 
                year, the amount under paragraph (4)(B)(i)(I) 
                for such taxable year shall be increased by the 
                amount determined under subparagraph (A)(i) for 
                such taxable year.
                  (E) Deduction allowed in computing minimum 
                tax.--Rules similar to the rules of paragraph 
                (2)(E) shall apply for purposes of this 
                paragraph.
          (6) Election out.--If a taxpayer makes an election 
        under this paragraph with respect to any class of 
        property for any taxable year, this subsection shall 
        not apply to all property in such class placed in 
        service (or, in the case of paragraph (5), planted or 
        grafted) during such taxable year. An election under 
        this paragraph may be revoked only with the consent of 
        the Secretary.
  (l) Special Allowance for Second Generation Biofuel Plant 
Property.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Allowance against alternative minimum tax.--For 
        purposes of this subsection, rules similar to the rules 
        of [section 168(k)(2)(G)] section 168(k)(2)(E) shall 
        apply.

           *       *       *       *       *       *       *


PART IX--ITEMS NOT DEDUCTIBLE

           *       *       *       *       *       *       *


SEC. 263A. CAPITALIZATION AND INCLUSION IN INVENTORY COSTS OF CERTAIN 
                    EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) General Exceptions.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Coordination with section 168(k)(5).-- This 
        section shall not apply to any amount allowable as a 
        deduction by reason of section 168(k)(5) (relating to 
        special rules for trees and vines bearing fruits and 
        nuts).

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


Subpart B--Taxable Year for Which Items of Gross Income Included

           *       *       *       *       *       *       *


SEC. 460. SPECIAL RULES FOR LONG-TERM CONTRACTS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Allocation of Costs to Contract.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Special rule for allocation of bonus depreciation 
        with respect to certain property.--
                  (A) * * *
                  (B) Qualified property.--For purposes of this 
                paragraph, the term ``qualified property'' 
                means property described in section 168(k)(2) 
                [which--] which has a recovery period of 7 
                years or less.
                          [(i) has a recovery period of 7 years 
                        or less, and
                          [(ii) is placed in service after 
                        December 31, 2009, and before January 
                        1, 2011 (January 1, 2012, in the case 
                        of property described in section 
                        168(k)(2)(B)), or after December 31, 
                        2012, and before January 1, 2014 
                        (January 1, 2015, in the case of 
                        property described in section 
                        168(k)(2)(B)).]

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    The six bills approved by the Republicans at the markup 
would add $304 billion to the deficit. Combined with the $310 
billion that the six bills approved by Republicans on the 
Committee in April added to the deficit, Republicans have added 
$614 billion to the deficit in two short months--and there does 
not appear to be an end in sight. Even though some of these 
bills were introduced individually with some bipartisan 
support, the opposition to these bills was based on the 
position that these tax provisions should not be made permanent 
by adding to the deficit without any revenue offset. This bill 
alone would add $287 billion to the deficit.
    To put the combined cost ($614 billion) into context, it is 
25 percent more than the entire projected federal deficit this 
year and $86 billion more than total non-defense domestic 
discretionary spending (e.g., medical research, education, 
veterans' pensions and health care, transportation, etc.) will 
be in 2014. It is almost seven times what we spend annually on 
education, job training, and social services. It is ten times 
more than we spend on veterans. And, it is eleven times more 
than we spend on medical research and public health.
    More specifically, we opposed H.R. 4718 because it would 
make permanent a provision that was designed to be temporary. 
As stated by the Congressional Research Service (CRS) in Bonus 
Depreciation: Economic and Budgetary Issues (March 24, 2014), 
bonus depreciation ``was enacted for a specific, short-term 
purpose: to provide an economic stimulus during the 
recession.'' CRS explained: ``A temporary investment subsidy 
was expected to be more effective than a permanent one for 
short-term stimulus, encouraging firms to invest while the 
benefit was in place. Its temporary nature is critical to its 
effectiveness.'' (Emphasis added.)
    The last decade highlights the temporary nature of this 
policy. It was put in place during the recession at the early 
part of the last decade before being allowed to expire in 2005 
as the economy improved. In 2008, as a new, deeper recession 
took hold, the policy was put in place again.
    We found it hypocritical that the Republicans would make 
permanent a provision that was repealed in Chairman Camp's Tax 
Reform Act of 2014 discussion draft (the ``Republican tax 
reform plan''). CRS also stated that ``moving to permanent 
bonus depreciation is inconsistent with tax reform proposals 
made by . . . Chairman Camp's proposal.'' Indeed, in the Ways 
and Means Committee Majority Tax Staff summary of the 
Republican tax reform plan, the summary of the accelerated cost 
recovery reform system states: ``The provision also would 
repeal the following special depreciation provisions: bonus 
depreciation . . .'' (Emphasis added.)
    We also found it hypocritical that, four months ago, 
Republicans let emergency unemployment insurance expire for 
more than 1.3 million Americans by arguing that an adequate 
offset had yet to be proposed. In early April, the Senate came 
to a bipartisan agreement on an offset after months of 
painstaking negotiations. Yet, House Republicans still refuse 
to act. We also found it irrational that Republicans would make 
permanent a temporary, stimulus provision for businesses and 
let emergency unemployment insurance for individuals (another 
temporary, stimulus provision) expire.
    Finally, we also opposed the manner in which Republicans 
were proceeding--selecting 10 to make permanent without any 
offset from the approximately 60 tax provisions that expired 
last year. This approach was both fiscally irresponsible and 
fundamentally hypocritical.
    The consideration of this bill should have been part of the 
consideration of all the expired tax provisions commonly 
referred to as ``tax extenders.'' The Republicans did not take 
up other tax extenders that also are important to Democratic 
Committee Members. Left to an uncertain fate are provisions 
like the Work Opportunity Tax Credit, the New Markets Tax 
Credit, and the renewable energy tax credits, as well as the 
long-term status of the Earned Income Tax Credit, the Child Tax 
Credit, and the American Opportunity Tax Credit.
            Sincerely,
                                   Sander M. Levin,
                                           Ranking Member.

                                  [all]
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