Section 179 and Bonus Depreciation Expensing Allowances: Current Law, Legislative Proposals in the 113th Congress, and Economic Effects

Gary Guenther
Analyst in Public Finance

Expensing is the most accelerated form of depreciation for tax purposes. Section 179 of the Internal Revenue Code (IRC) allows a taxpayer to expense (or deduct as a current expense rather than a capital expense) up to $500,000 of the total cost of new and used qualified depreciable assets it buys and places in service in 2013, within certain limits. Firms unable to take advantage of this allowance may recover the cost of qualified assets over longer periods, using the appropriate depreciation schedules from Sections 167 and 168. While the Section 179 expensing allowance is not targeted at firms that are relatively small in employment, asset, or receipt size, the rules governing its use generally confine its benefits to such firms.

In addition, Section 168(k), which provides a so-called bonus depreciation allowance, generally allows taxpayers to expense half the cost of qualified assets bought and placed in service in 2013. Taxpayers that can claim the allowance have the option of monetizing any unused alternative minimum tax credits left over from tax years before 2006, within certain limits, and writing off the cost of the assets that qualify for the allowance over longer periods.

This report examines the current status, legislative history, and economic effects of the two expensing allowances. It also discusses initiatives in the 113th Congress to modify them. The report will be updated as legislative activity warrants.

Both expensing allowances have enjoyed broad bipartisan support in recent Congresses. The American Taxpayer Relief Act of 2012, P.L. 112-240, increased the maximum Section 179 expensing allowance to $500,000 and the phaseout threshold to $2 million for qualified assets acquired and placed in service in 2012 and 2013. The act also extended through 2013 the 50% bonus depreciation allowance from 2012. Several bills (e.g., S. 1085) to extend or enhance the two allowances have been introduced in the 113th Congress. But with tax reform a high priority for the chairmen of the House Ways and Means and Senate Finance Committees, the outlook in the current Congress for enacting changes in either or both allowances is uncertain.

Since 2002, the two allowances have served as one of several tax incentives for stimulating the U.S. economy. This raises the question of their effectiveness. Though there are no studies that address the economic effects of the enhanced Section 179 allowances enacted in the previous eight years, several studies have examined the economic effects of the 30% and 50% bonus depreciation allowances that were available from 2002 to 2004. The two allowances applied to mostly the same property. Basically, the studies concluded that accelerated depreciation in general is a relatively ineffective tool for stimulating the economy.

Available evidence, as incomplete as it is, indicates that the expensing allowances probably have had no more than a minor effect on the level, composition, and allocation among industries of business investment; the distribution of the federal tax burden among income groups; and the cost of tax compliance for smaller firms. On the one hand, an expensing allowance has the potential to spur increased small business investment in favored assets in the short run by reducing the user cost of capital and increasing the cash flow of investing firms. It also has the advantage of simplifying tax accounting for depreciation for firms that take the expensing allowance. On the other hand, an expensing allowance could interfere with the allocation of economic resources by diverting capital flows away from investments with more productive outcomes and speeding up the timing of qualified investments.


Date of Report: July 15, 2013
Number of Pages: 22
Order Number: RL31852
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Youth and the Labor Force: Background and Trends

Adrienne L. Fernandes-Alcantara
Specialist in Social Policy

Congress has indicated a strong interest in ensuring that today’s young people—those ages 16 through 24—attain the education and employment experience necessary to make the transition to adulthood as skilled workers and taxpayers. In the wake of the December 2007-June 2009 recession, questions remain about the employment prospects of youth today and the possible effects on their future earnings and participation in the labor market.

• Over the past decade, teens and young adults have experienced a precipitous decline in employment and a corresponding increase in unemployment. In 2000, their employment to population (E/P) ratio was about 60%. Their E/P ratio steadily eroded even when the economy grew in the mid-2000s. The December 2007-June 2009 recession resulted in record low employment (based on the E/P ratio) for this population. Since the official end of the recession, younger workers have continued to fare poorly in the labor market. In 2012, youth ages 16 through 24 had an E/P ratio of 46.0% and a rate of unemployment at 16.2%. This is compared to an E/P ratio of 75.7% and an unemployment rate of 7.0% for workers of prime working age, 25 through 54. 
• Recent declining E/P ratios for young people are likely due to decreasing demand for labor generally and youth foregoing work for higher education. Youth may decide to pursue education because of dismal employment prospects and the growing need for more education to be successful in the labor market. 
• Throughout the post-World War II period, the E/P ratio has been highest for white youth, followed by Hispanic youth. Black and Asian youth have been the least likely to be employed. For black youth, this is likely due to lower educational attainment. Lower rates of employment for Asian youth are likely attributable to their increasing participation in postsecondary education. Young black males in particular have had the lowest E/P ratios. 
• Beginning in the 1970s, the E/P ratios for women increased as they entered the workforce in greater numbers. The gender difference in the E/P ratio for teens and young adults began to narrow in the 1990s, likely due to greater high school and college attainment among females and other factors. 
• Lower E/P ratios—and simultaneous increases in unemployment—for young people appear to be due to a confluence of factors. Youth have less education and experience relative to older workers. In general, firms are more likely to hire workers with more experience and availability, which puts young workers at a disadvantage. Young workers may especially face challenges in landing a job during tough economic times. 

The consequences of decreasing E/P ratios and increasing unemployment among youth have not been fully explored. Preliminary research in this area has hypothesized that reductions in human capital, such as deterioration of skills and foregone work experience, may have lasting impacts on employability and wages of youth. Some studies show that on average, early youth unemployment has negative effects on incomes but not as strong effects on future unemployment; however, youth entering the labor market during severe downturns in the economy appear to have relatively lower wages in the longer term.


Date of Report: July 11, 2013
Number of Pages: 36
Order Number: R42519
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Small Business Administration HUBZone Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including the Historically Underutilized Business Zone Empowerment Contracting (HUBZone) program. The HUBZone program is a small business federal contracting assistance program “whose primary objective is job creation and increasing capital investment in distressed communities.” It provides participating small businesses located in areas with low income, high poverty rates, or high unemployment rates with contracting opportunities in the form of “setasides,” sole-source awards, and price-evaluation preferences. Firms must be certified by the SBA to participate in the HUBZone program. On July 11, 2013, there were 5,788 certified HUBZone small businesses.

In FY2012, the federal government awarded 76,748 contracts valued at $8.1 billion to HUBZonecertified businesses, with about $1.88 billion of that amount awarded through a HUBZone setaside, sole source, or price-evaluation preference award. The program’s FY2012 administrative cost was about $9.1 million. Its FY2013 appropriation is $2.5 million ($1.976 million following sequestration), with the additional cost of administering the program provided by the SBA’s appropriation for general administrative expenses.

Congressional interest in the HUBZone program has increased in recent years, primarily due to U.S. Government Accountability Office (GAO) reports of fraud in the program. Some Members have called for the program’s termination. Others have recommended that the SBA continue its efforts to improve its administration of the program, especially its efforts to prevent fraud.

This report examines arguments both for and against targeting assistance to geographic areas with specified characteristics, such as low income, high poverty, or high unemployment, as opposed to providing assistance to people or businesses with specified characteristics. It then assesses the arguments both for and against the continuation of the HUBZone program.

The report also discusses the HUBZone program’s structure and operation, focusing on the definitions of HUBZone areas and HUBZone small businesses and the program’s performance relative to federal contracting goals. The report includes an analysis of the SBA’s administration of the program and the SBA’s performance measures.

This report also examines P.L. 111-240, the Small Business Jobs Act of 2010, which removed certain language from the Small Business Act that had prompted federal courts and GAO to find that HUBZone set-asides have “precedence” over other small business set-asides. It also briefly discusses H.R. 489, the HUBZone Expansion Act of 2013, and its companion bill in the Senate (S. 206), which would expand the area eligible for HUBZone status as a result of a BRAC military base closure, and S. 259, the Assuring Contracting Equity Act of 2013, which would increase the federal government’s small business contracting goals, including the goal to award not less than 3% of the total value of all small business eligible prime contract awards and subcontract awards to HUBZone small businesses to not less than 6%.


Date of Report: July 12, 2013
Number of Pages: 33
Order Number: R41268
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Sexual Orientation and Gender Identity Discrimination in Employment: A Legal Analysis of the Employment Non-Discrimination Act (ENDA)

Jody Feder
Legislative Attorney

Cynthia Brougher
Legislative Attorney

Introduced in various incarnations in every congressional session since the 103rd Congress, the proposed Employment Non-Discrimination Act (ENDA; H.R. 1755/S. 815) would prohibit discrimination based on an individual’s actual or perceived sexual orientation or gender identity by public and private employers in hiring, discharge, compensation, and other terms and conditions of employment. The stated purpose of the legislation is “to address the history and persistent, widespread pattern of discrimination, including unconstitutional discrimination, on the basis of sexual orientation and gender identity by private sector employers and local, State, and Federal Government employers,” as well as to provide effective remedies for such discrimination. Patterned on Title VII of the Civil Rights Act of 1964, the act would be enforced by the Equal Employment Opportunity Commission (EEOC).


Date of Report: July 15, 2013
Number of Pages: 15
Order Number: R40934
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Vocational Rehabilitation Grants to States: Program Overview

Benjamin Collins
Analyst in Labor Policy

Vocational rehabilitation (VR) state grants provide funds to state and territorial agencies to administer services to individuals with disabilities to aid them in securing and maintaining employment. States are required to match a portion of their federal grants. The VR grants program is administered by the Rehabilitation Services Administration (RSA), part of the Department of Education (ED).

To be eligible for VR services, an individual must establish that (1) he or she has a disability that creates an obstacle to employment and (2) he or she would benefit from VR services. After qualifying for VR services, each client works with a VR counselor to develop an Individualized Plan for Employment (IPE). The IPE defines the client’s desired employment outcome and outlines the services necessary to achieve that outcome.

To meet the objective stated in a client’s IPE, a VR agency can coordinate a variety of services. These can range from simpler services such as job search assistance to more complex job training or postsecondary education. VR agencies can also provide support services that aid a client’s progress toward employment, such as transportation subsidies or reader services for clients with visual impairments. In all cases, a client must exhaust all other applicable government assistance before a VR agency will pay for a service.

In cases where a state anticipates that it will not be able to serve all eligible individuals, it must notify RSA that it will implement an order of selection plan. This plan establishes which individuals will receive preference if the state agency is unable to serve all eligible clients. ED dictates that agencies must first serve individuals with the most significant disabilities, but defining the most significant disabilities is left to the state agencies.

VR grants are supported through mandatory appropriations. Authorization for the VR grant program expired after FY2003. The program’s authorizing legislation specifies that if the authorization for appropriations has expired and Congress has taken no action, the program will automatically be reauthorized for the subsequent year and the appropriation for the program will equal the prior year’s appropriation plus an increase equal to inflation. The program has operated under these provisions since FY2004.

Since the expiration of authorization of appropriations after FY2003, the reauthorization of the VR state grants program has been debated as a part of a package to reauthorize the Workforce Investment Act of 1998 (WIA). While bills have made legislative progress in several Congresses, no consensus has emerged.

Congress appropriated $3.1 billion for VR grants to states in FY2013. In FY2011, the most recent year for which program data are available, more than 1 million individuals had contact with a state or territorial VR agency and agencies reported more than 178,000 successful employment outcomes. At the end of FY2011, about 34,000 individuals were on VR waiting lists.


Date of Report: June 26, 2013
Number of Pages: 23
Order Number: R42148
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