According to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), the U.S. economy was in recession from December 2007 to June 2009. Congress passed and the President signed an economic stimulus package, the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), in February 2009. The $787 billion package included $286 billion in tax cuts to help stimulate the economy. Among the tax reductions, many were tax incentives directed to business. The estimated revenue losses of the business tax incentives are $40 billion for FY2009, $36 billion for FY2010, and $6 billion for FY2009-FY2019 (because of estimated revenue gains in the out years). The business tax incentives included a temporary expansion of the work opportunity tax credit, a temporary increase of small business expensing, a temporary extension of bonus depreciation, and a five-year carry back of 2008 net operating losses for small businesses. Many were subsequently extended by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ). The preliminary estimate of fourth quarter real gross domestic product (GDP) growth is 5.9%; the unemployment rate, a lagging indicator, averaged 9.6% in the third quarter and 10.0% in the fourth quarter of 2009. Federal Reserve Chairman Ben Bernanke expected the economy to continue growing at a modest pace, but predicted that bank lending will remain constrained and the job market remain weak into at least 2010. To further assist unemployed workers, help business, and stimulate housing markets, Congress passed the Worker, Homeownership, and Business Assistance Act of 2009 (signed by the President on November 6, 2009, P.L. 111-92 ). Many observers have advocated further business tax incentives to spur investment and employment. Recent op-ed contributors have proposed tax credits to encourage businesses to hire. The Obama Administration has proposed tax incentives for small businesses to encourage investment and hiring. The House and Senate passed the Hiring Incentives to Restore Employment (HIRE) Act, which includes an employment tax credit. The President signed the act into law on March 18, 2010. In December 2010, P.L. 111-312 extended and expanded the business tax provisions. Some proposals would expand the reduction in payroll taxes for individuals and to extend it to employers. While a payroll tax on the individual side expands demand in the same way as other income tax cuts, the employer tax forgiveness is similar to an employer-side wage subsidy, which acts through a different mechanism. The reduction in payroll taxes for individuals expired at the end of 2012. The need for tax incentives to boost economic activity depends on the state of the economy. One measure that has tracked economic activity fairly well in the past is the Federal Reserve Board's industrial production index, which is used by NBER in its determination of the economy's turning points. Figure 1 and Figure 2 show the monthly industrial production index for the five past recessions. The index is followed from the beginning of each recession (month 0 in the figures) and for the next 36 months. Figure 1 compares the trend in the industrial production index for the previous two recessions (the 1990-1991 recession and 2001 recession) with the recently ended recession (the 2007-2009 recession—the dashed line). The first two recessions lasted for eight months according to NBER; the industrial production index in both cases started to track upward eight months after the recession started. In the 2007-2009 recession, however, the industrial production index was still declining eight months after the recession started and continued to trend downward for the next 10 months. Figure 2 compares the 2007-2009 recession with the 1973-1975 and 1981-1982 recessions. The latter recessions lasted for 16 months according to NBER, and the industrial production index bottomed out at the end of each recession. The trend in index for the 2007-2009 recession appears to approximately track the trend over the other two recessions. In the current recession, the index declined between December 2007 and June 2009, before turning up. The data on real GDP growth and industrial production suggest that economic activity (that is, output) began increasing in July 2009; NBER determined that the recession lasted for 18 months. The December 2012 industrial production index was still below the December 2007 index. The tax incentives to enhance economic activity being discussed, however, do not target output. Rather, they target investment and employment. Investment spending by firms tends to decrease in a recession. Figure 3 displays the quarterly growth rates for real nonresidential gross investment (i.e., business investment) for the quarter in which the recession started and the subsequent 10 quarters for five recessions. Each recession is different, but generally by the third quarter after the start of the recession real investment growth is negative and remains negative for the next four quarters. During the 2007-2009 recession, the decline in real investment spending was particularly severe in the fourth and fifth quarters compared with the other four recessions. Not all gross investment is used to add to the capital stock; some is used to replace worn-out capital goods (i.e., consumption of fixed capital or depreciation). In 2011, about 85% of gross investment spending replaced the value of worn-out fixed assets (this percentage has varied between 57% and 83% over the past 40 years); the other 15% increased the capital stock. The consumption of fixed assets as a percentage of gross nonresidential investment stood at 60% in 1970; it increased by 25 percentage points between 1970 and 2011. Overall, net nonresidential investment as a percentage of GDP has been trending downward—falling from 4.1% in 1970 to 3.0% in 2008 to 1.1% in 2011. Employment fell for 22 months after the start of the 2007-2009 recession in December 2007. Figure 4 and Figure 5 show employment for the first month of the recession and the subsequent 36 months for the 2007-2009 recession and four other recessions. Employment is shown as an employment index (i.e., as the percentage of employment in the first month of the recession). Employment typically lags the recovery in output by a few months in part because employers are likely to restore the hours worked by employees still on their payrolls before recalling those laid off or hiring new workers. The 2007-2009 recession is compared with the previous two recessions—the 1990-1991 and 2001 recessions—in Figure 4 . Although the previous two recessions were relatively mild and short (lasting for eight months), employment levels were either stagnant (the 1990-1991 recession) or declining (the 2001 recession) for several months after the end of the recession. For example, employment hit bottom 21 months after the 2001 recession ended. In the 2007-2009 recession, employment levels declined slightly over the first 9 months of the recession and then fell sharply over the next 12 months. Employment stood at 94% of the December 2007 employment level 25 months after the start of the recession. Employment started to turn up 8 months after the end of the recession. Figure 5 compares the employment levels during the recently ended recession with employment levels during the 1973-1975 and 1981-1982 recessions. These latter two recessions were relatively deep and prolonged—lasting for 16 months. For these two recessions, the employment level began increasing within a month or two after the end of the recession (the end of these recessions is denoted by the vertical line in the figure). In the 2007-2009 recession, employment levels began to rise eight months after the recession ended. The December 2012 employment level, however, is still below the December 2007 level. Weakness in the labor market is further indicated by the proportion of the labor force who have been unemployed for at least six months (the long-term unemployed). Figure 6 displays the monthly unemployment and long-term unemployment rates since 1948. The long-term unemployment rate has generally tracked the unemployment rate over the business cycle. Over a business cycle, the long-term unemployment rate is at its lowest point at or near the beginning of a recession and then reaches a peak a few months after the end of the recession (typically within six to eight months). Like the unemployment rate, the long-term unemployment rate is a lagging indicator—the labor market does not begin to recover from a recession until sometime after the official end of the recession. After the 1990-1991 and 2001 recessions, however, the long-term unemployment rate did not reach its peak until 15 and 19 months, respectively, after the recession ended. The long-term unemployment rate is currently higher than at any time over the past 62 years—throughout the recovery, over 3% of the labor force (about 40% of the unemployed) had been out of work for six months or more. The two most common measures to provide tax incentives for new investment are investment tax credits and accelerated deductions for depreciation. Investment tax credits provide for a credit against tax liability for a portion of the purchase price of assets and are often proposed as a counter-cyclical or economic stimulus measure. Accelerated depreciation speeds up the rate at which the cost of an investment is deducted. The investment tax credit was originally introduced in 1962 as a permanent subsidy, but it came to be used as a counter-cyclical device. It was temporarily suspended in 1966-1967 (and restored prematurely) as an anti-inflationary measure; it was repealed in 1969, also as an anti-inflationary measure. The credit was reinstated in 1971, temporarily increased in 1975, and made permanent in 1976. After that time, the credit tended to be viewed as a permanent feature of the tax system. At the same time, economists were increasingly writing about the distortions across asset types that arose from an investment credit. The Tax Reform Act of 1986 moved toward a system that was more neutral across asset types and repealed the investment tax credit while lowering tax rates.