February 5, 2015

Wobbly Policies Make For a Shaky Economy

David M. Primo

Senior Affiliated Scholar
Summary

We’ve long understood that poorly crafted laws and regulations can inhibit investment and economic growth, but at least investors and business managers can incorporate stable rules into their strategies. There’s another barrier to growth that hasn’t gotten the attention it deserves: the uncertainty created by temporary policy making.

Contact us
To speak with a scholar or learn more on this topic, visit our contact page.

We’ve long understood that poorly crafted laws and regulations can inhibit investment and economic growth, but at least investors and business managers can incorporate stable rules into their strategies. There’s another barrier to growth that hasn’t gotten the attention it deserves: the uncertainty created by temporary policy making.

Here’s an example of what I mean. In 2014 small businesses had to make capital-investment decisions in the face of uncertainty over whether an expiring tax provision, Sec. 179—which allowed for $500,000 of accelerated depreciation for equipment purchases—would be continued, or whether a scaled-down version with a much lower threshold of $25,000 would take its place.

What did Congress do? In December it reinstated the larger Sec. 179 deduction for 2014 (retroactively for the entire year). This means a small business in 2014 had to make its equipment purchasing decisions before knowing what Sec. 179 would look like, or delay purchases until very late in the year once the extension was granted. The deduction dropped back to $25,000 on Jan. 1. What will Congress do now? Who knows?

Continue reading