Mankiw Speaks

Mankiw has a post on the administration’s proposed changes in the tax treatment of investment.  As usual, he is right on.  The proposed treatment amounts to a zero interest loan, at a time when interest rates are already remarkably close to zero:

However, the impact will be relatively modest. Notice that expensing merely accelerates deductions. Thus, the value to the firm depends on interest rates. With interest rates near zero, the impetus to investment is small. Put another way, this policy can be seen as giving firms a zero-interest loan if they invest in equipment. But with interest rates near zero anyway, the value of the loan is not that great.

I like his final paragraph, where he endorses an investment tax credit, something we at CERF have been recommending for some time:

One can imagine more aggressive policies along similar lines, such as an investment tax credit together with expensing.  But let’s not make the best the enemy of the good.  This policy proposal is a step in the right direction.  I hope Congress passes it quickly and in a bipartisan fashion.

I hope so too.

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