Introduction
Expensing in business is applied as an accelerated form of depreciation. According to Yuan and Oriaku (2016), the benefits accrued allow companies to make new capital investments. The results are that the business owners enjoy the incentive of expensing their initial buying costs of machinery helping them to lower tax burden. The incentive generated by the reinstatement of Section 179 motivates small business owners to invest and expand their businesses.
Unemployment
Greater investment is related to gains in employment and innovations. Re-instating the act will hence lead to reducing the level of unemployment in the U.S and increasing novelty. It will, therefore, stimulate the U.S economy by reducing the dependency level and increasing creativity. The domestic consumers, private entities, and the government will, as a result, enhance their level of savings. The result will be increased investments since there will be a high amount of funds available for investments in infrastructure and private business, creating more jobs in the economy (Brazell & Mackie, 2000).
Expensing and Business Investment
Expensing contributes as the major form of depreciation that causes huge allowable deductions to the business. The results are reduced taxable income, creating the potentiality of stimulating business investment. Performance is made possible by cutting down the cost of capital to be incurred for qualified investments. Schroeder, Clark, and Cathey (2013) argue that reduced costs of capital facilities in helping firms free up substantial resources. The amount will be available to be employed in achieving various business objectives. The reinstatement of section 179 of the year 2014 will help firms further invests in other factors of production, for instance, labor and capital.
The act will also help companies have enough earnings after payment of tax that will facilitate payment of dividends as well as retaining profits made to use in the future. The argument here is that decreased cost of capital as a result of reinstating Section 179 will cause the level of investments to increase stimulating U.S economy (Schroeder et al., 2013). Using extra funds to enable small firms to boost investment from the newly availed resources has a direct impact on increasing levels of output and stimulates economic growth.
Output Levels
Economists support that decreasing the cost of capital affects levels of aggregate demand and investment. Reinstatement of section 179 of the international revenue code will hence stimulate the U.S economy by increasing the level of employment. The overall effects will cause an increment in aggregate demand. The policy will stimulate the U.S economy by increasing government spending, consumption, net export, and investment.
Increased levels of production will subsequently result in higher employment. Brazell and Mackie (2000) argue that empirical investment can be linked to levels of employment in an economy. The evidence, therefore, supports the theory of the firm in that, expansionary mode results in capital investments. Subsequently, it employs a new workforce that is required to operate the new capital.
Increased Investors Confidence
The United States considers the sales of motor vehicles to be the major economic indicator. An increase in car sales is used to reflect the satisfaction of consumers concerning their microeconomic future. The effects are therefore beneficial for investors, consumers, lenders, and manufacturers. The reinstatement of Section 179 allows the sale of vehicles that had been neglected to be attractive. The results will be an observable increase in the number of units produced benefitting manufacturers and employees (Yuan & Oriaku 2016). The revenue code drives demand for cars boosting the need for car loans. Lenders will hence generate profits through increased applications for car loans benefiting them and their stakeholders.
References
Brazell, D. W., & Mackie III, J. B. (2000). Depreciation lives and methods: Current issues in the U.S. capital cost recovery system. National tax journal, 53(3), 531-561.
Schroeder, R.G., Clark, M.W, & Cathey, J.M. (2013). Financial accounting theory and analysis: Text and cases (11th ed.). New York, NY: Wiley.
Yuan, X., & Oriaku, E. A. (2016). Does increase in the depreciation expensing allowance spur economic growth? Evidence from USA. International Journal of Business & Economic Development, 4(2), 61-67.