Frequently Asked Questions
Guidelines for Citing BEA Information | ID: 1002 | Created: Aug-05-2011
Over the past several years several economic stimulus acts have become law. These acts have often contained bonus depreciation provisions and higher ceilings for small business expensing. For example, the Economic Stimulus Act of 2008 (see June 2008 Survey of Current Business) provides for a first-year bonus depreciation of 50 percent for qualifying property purchased and put in place in 2008. The law also raises the ceiling for small business expensing under Internal Revenue Code Section 179 from $128,000 to $250,000. Because the deductible amount summed across 2008 and future tax years is equal to the cost of the qualifying property, the accelerated deductions in 2008 result in reduced deductions in future years. These provisions are reflected in NIPA corporate profit estimates.
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) are not affected by these acts, because they do not depend on the depreciation-accounting practices used for Federal income tax purposes; this measure of profits reflects depreciation that is based on an estimate of the reduction in the value of fixed capital used in the production process. Because these acts reduce tax liability, profits after tax with inventory valuation and capital consumption adjustments are raised.
Stimulus acts provisions increase the depreciation that corporations could claim and thus will reduce profits before taxes (PBT) by the same amount (PBT is based on the inventory and depreciation-accounting practices used for Federal corporate income tax returns.) As a result, taxes on corporate income is reduced, and profits after tax (without IVA and CCAdj) is also reduced.
The capital consumption adjustment (CCAdj) is the difference between the depreciation consistent with the tax code and the depreciation underlying profits from current production. It represents the adjustment to “book” profits needed to put them on an economic accounting basis. As tax based depreciation estimates are raised, the CCAdj is increased by the same amount.
In addition to the Economic Stimulus Act of 2008, other stimulus acts include: the Job Creation and Worker Assistance Act of 2002 (see April 2002 Survey of Current Business), the Jobs and Growth Tax Relief Reconciliation Act of 2003 (see July 2003 Survey of Current Business), the Small Business Jobs and Credit Act of 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, and the American Taxpayer Relief Act of 2012. The effects of later acts are net of offsetting bonus depreciation that was claimed in earlier years. For detailed data, see the table "Net Effects of the Tax Acts of 2002, 2003, 2008, 2009, 2010, and 2012 on Selected Measures of Corporate Profits". BEA estimates are based on data from the Office of Tax Analysis (OTA) of the Department of the Treasury and other source data. Detailed information about Treasury's bonus depreciation calculations is available in OTA's working paper entitled "Corporate Response to Accelerated Tax Depreciation: Bonus Depreciation for Tax Years 2002-2004".
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