Source: Tax Foundation, Capital Cost Recovery (Final Data, Net Present Value; accessed August 31, 2022), Author’s calculations.
Commentary: In 2021, the United States ranked 20th among the 38 Organization for Economic Cooperation and Development (OECD) nations with respect to capital allowances, per data from the Tax Foundation.
The United States allowed firms to deduct a weighted average of 67.7 percent of the net present value of their capital investments—in industrial buildings, machinery, and intangibles—from their taxable income through depreciation. This is below the 70.7 percent OECD average. However, the United States’ ranking is propped up temporarily by the full-expensing provision of the 2017 Tax Cut and Jobs Act, which allows firms to deduct 100 percent of investments in new machinery. Because of this, the United States is tied for second for machinery capital allowance rate (the United Kingdom allows firms to recover 130 percent of investments in new machinery) but ranks 32nd and 34th among OECD nations in terms of capital allowance rates for buildings and intangibles, respectively. But the full-expensing provision is set to start phasing out after this year. If the U.S. machinery capital allowance rate were to return to its pre-full-expensing level of 93.8 percent, the United States’ weighted-average capital allowance rate would drop to 64.9 percent, which would rank just 27th among OECD nations.
