The LitiGator's Tax Stimulus Plan
I offer the following without any restriction to any Senator or Congressman who wants to run with it and take all the credit. My readers will know that they heard it here first.
The Federal Government should offer a one-time only increase in the amount of capital equipment which can be expensed under Section 179 of the Internal Revenue Code from the current level of $25,000 to $250,000.
(Note: The Bush tax cut proposal calls for a permanent increase in the Section 179 exemption to $75,000.)
A capital expenditure is an expenditure for furnishings, equipment, machinery, computers, software, and many real estate additions and improvements that have a cost of $1,000 per item or more and have a useful life of two or more years. In general, the cost of such items cannot be deducted by a business; they must be identified as capital items and depreciated over the space of several years. The Internal Revenue Code and its regulations specify the number of years that apply to each type of capital item.
Although there are some other rules which apply, the most significant limit for most small businesses is the "expensed capital item" exception under Section 179: in 2003, up to $25,000 of capital items may be deducted as an ordinary expense of doing business, as a de minimis exception to the general rule.
If this plan were to be adopted, this limit would expand to $250,000 for 2003 only. Among those companies which need to or want to purchase or upgrade equipment, make improvements to real estate or leaseholds, and otherwise make investments in their businesses, but are unwilling to do so beyond the $25,000 level because they could not take that amount as a deduction from their ordinary income, there are many who would take advantage of this one-time tax benefit, providing a significant stimulus across the board to many sectors of the economy.
The beauty of this plan is that the likely cost to the U.S. Treasury is zero. The target of this plan is small businesses; large and even medium-sized corporations make their purchasing decisions without much concern for Section 179. Small businesses do not accumulate money; it is either spent on ordinary and deductible expenses or it is paid out to the owners and deducted by the business. If a business determines not to spend $100,000 on equipment in a given year because it cannot take a deduction for that purchase, its owners will not keep the $100,000 in the business to be subject to income tax at the end of the year; it will be used for some other purpose which will garner a deduction, including payouts to the owners as income. Business owners know how and why to keep money out of the company's coffers on December 31 of each year. There thus would not be any loss of corporate tax revenue from the business itself.
The loss of the income tax which would otherwise be paid by the owners on the amounts that would be paid to them as income would be at least offset, and probably more than offset, by the fact that the money spent on the purchases of equipment becomes income to the businesses making or selling the equipment. It will become income to someone else.
The LitiGator's Tax Cut Plan
One of the major provisions of the President's tax cut plan is to make permanent the repeal of the estate tax. The current statutory plan must have been carefully crafted by Congress after an all-night bender -- or perhaps a rave. Under current law, the per-person exemption rate is raised and the estate tax rate is gradually lowered, both are finally eliminated altogether in 2010, and then reinstated at 2002 levels in 2011. In order to take full advantage of repeal, you must plan to die in 2010.
In my opinion, there are some justifiable reasons for an estate tax, but it falls on too many people and the 55% rate is confiscatory. I would advocate for:
- An increase in the per-person exemption amount from the current $1 million to $3 million.
- A flat 25% rate on estates that exceed that level.
- A provision that all of the revenue generated is to be used for education.
The only justification behind the estate tax is to prevent or ameliorate dynastic accumulations of wealth. The estate tax, unlike other taxes, has outright and unapologetic social engineering as its justification. So let's use it for outright and unapologetic social engineering. Let us exempt the first three million, so that the tax is imposed only on the truly wealthy. Let us keep the rate limited to 25%, to avoid the sense of outright confiscation. Let us use the revenue to permit those who cannot otherwise afford to do so attend college or trade school, in order to enhance their skill sets and their positions in life, so that they can better support themselves and improve their chances of becoming wealthy on their own initiative.
7:22:10 AM 
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