The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act ( S. 2260 ) would extend a set of expired tax provisions (including bonus depreciation) through the end of 2015. This bill subsequently became part of an amendment to H.R. 3474 . The bill did not advance in the Senate, as a motion to end debate on H.R. 3474 was voted down on May 15, 2014. An earlier bill introduced by Senate Majority Leader Reid at the end of 2013, the Tax Extenders Act of 2013 ( S. 1859 ), would have extended expiring tax provisions, including bonus depreciation, through 2014. In the House, Committee on Ways and Means Chairman Dave Camp's tax reform discussion draft, the Tax Reform Act of 2014, released in February, made some extenders permanent, but not bonus depreciation. His draft bill further restricted depreciation deductions. Many of the proposed permanent extenders in this draft were introduced as separate bills, passed separately, and subsequently combined into a single bill, the Jobs for America Act ( H.R. 4 , adopted September 18). One of these permanent provisions was bonus depreciation (originally, in H.R. 4718 , adopted on July 11), although this provision was not in the Camp draft. The temporary provisions enacted in the past for only a year or two and extended multiple times are generally referred to collectively as the "extenders." One reason advanced for temporary provisions has been that time is needed to evaluate them. Most of these provisions, however, have been extended multiple times (e.g., the R&D credit has been extended 15 times since 1981) without such an evaluation, which leads some to suggest that these provisions are actually permanent but are extended a year or two at a time because assuming permanence would increase costs in budget projections. The inclusion of bonus depreciation in the latest extenders bill, which would reflect an extension through an eighth year, creates ambiguity about the nature of this provision, which is far from a minor provision. Similarly, the House proposals that would, in one case, eliminate bonus depreciation, and, in the other, make it permanent, add to this ambiguity. Bonus depreciation is not a traditional "extender." It was enacted for a specific, short-term purpose: to provide an economic stimulus during the recession. Its temporary nature is critical to its effectiveness. Most of the major provisions of the stimulus bills in 2008 and 2009 (the Economic Stimulus Act of 2008, P.L. 110-185 , and the American Recovery and Reinvestment Act, P.L. 111-5 ) or their replacements have expired. Therefore, a question arises about the nature of bonus depreciation. If it is not included in the extenders package, its status as a temporary provision becomes clear. But if it is included, the action may or may not indicate that the provision has become permanent. However, if it is effectively permanent, there are important implications for the overall treatment of capital income, international comparisons of tax rates, consistency with tax reform proposals, and revenue issues. This report discusses bonus depreciation as either a temporary stimulus provision or a permanent part of the tax code. Tax depreciation rules determine how quickly the cost of an investment in assets, such as equipment or buildings, can be deducted. Because these assets produce output over a period of years, the cost of acquiring them is also deducted over a period of years so that costs can be matched with receipts to measure profits. To measure profits correctly, the deduction in each period should match the decline in the value of the asset (i.e., the change in price if it were to be sold); this change in value is called economic depreciation. Tax law contains rules that prescribe how asset costs are deducted. These rules consist of a life (the number of years over which deductions are taken) and a method. If deductions are taken in equal amounts in each year (for example, if a $1 million asset is deducted over 10 years with $100,000 deducted in each year) the method is called straight line. Faster methods are declining balance methods where a rate higher than straight line is applied to the undepreciated balance. In the 10-year example, with double declining balance, twice the rate (2/10, or 20%) would apply the first year for a deduction of $200,000. This 20% rate would apply the next year on the $800,000 not yet depreciated (for $160,000) and so on, with a switch to straight line allowed at any time. At that point, which is optimal after the fifth year, straight line depreciation of the remaining balance over the remaining life (that is, one-fifth of the remaining balance per year) is allowed. Other declining balance rates (such as 150%, where the first year's deduction is 1.5 times straight line) have also been used, now and in the past. When depreciation rules were set in the Tax Reform Act of 1986 ( P.L. 99-514 ), they allowed for accelerated deductions to offset the lack of indexing for inflation, so that the discounted present value of tax depreciation deductions was roughly equal to the discounted present value of economic depreciation. Since that time, inflation has declined and caused the value of tax depreciation to be more beneficial than economic depreciation. For non-residential buildings, the inflation effect has been offset by an increase in tax lives. For equipment, with costs deducted over relatively short periods of time and under accelerated declining balance methods, tax depreciation is more generous than economic depreciation. If tax depreciation is equal to economic depreciation in present value, the effective tax rate for the firm (the difference between the before-tax rate of return on the investment and the firm's after-tax return, divided by the before tax return) is equal to the statutory rate for an equity investment. (Rates are higher for equity investment when shareholder taxes are imposed, but may be negative for debt-financed investment.) If depreciation has a greater present value than economic depreciation the effective tax rate falls below the statutory rate for firm-level taxes on equity investment; if all of the cost is immediately deducted the effective tax rate is zero. Most equipment is depreciated over 5 years or 7 years using the double declining balance method. Some longer-lived assets are depreciated over 10, 15, or 20 years, and some shorter-lived property is deducted over 3 years. Property with a life over 10 years is depreciated using the 150% declining balance method. Depreciation rules also include a half-year convention because assets are purchased over the course of a year. This rule allows only half of the full year's depreciation to be taken in the first year. Thus, a five-year asset actually generates six years of depreciation deductions. Buildings are depreciated using the straight line method; commercial and industrial buildings are depreciated over 39 years and residential buildings over 27.5 years. Bonus depreciation allows a fraction of the cost to be deducted immediately (referred to as partial expensing). The most recent bonus depreciation rule allowed half of the cost of equipment purchased and placed in service in 2013 to be deducted immediately. Thus, it is similar to accelerated depreciation in that bonus depreciation lowers the tax burden on new investment. For example, as shown above in the straight line depreciation of a $1 million asset over 10 years, with bonus depreciation, half ($500,000) would be deducted immediately and the remaining $500,000 would be deducted over 10 years with $50,000 deducted per year. Depreciation in the first year would increase from $100,000 to $550,000. Although general bonus depreciation has expired for most property, certain property that has a long pre-production period and transportation property is still eligible for bonus depreciation through 2014. Bonus depreciation is often discussed along with another provision that allows more generous depreciation than the normal rules, a provision allowing the expensing of a limited dollar amount of investment. An increase in these dollar limits has recently been extended in tandem with bonus depreciation. This expensing provision has, however, a limited scope compared with bonus depreciation and is not analyzed in this report. Bonus depreciation was first enacted in the Job Creation and Worker Assistance Act of 2002 ( P.L. 107-147 ) at a 30% rate, for three years, with the purpose of stimulating investment during an economic slowdown. Concerns about the economy had come in the aftermath of the 2001 terrorist attacks. Although the bonus depreciation rate was increased by the Jobs and Growth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ) to 50% in the following year and extended for a year, it expired at the end of 2005. With the financial distress and recession that began in 2007, the Economic Stimulus Act of 2008 ( P.L. 110-185 ) was enacted to stimulate the economy, including a single year of bonus depreciation at 50%. Bonus depreciation was not the centerpiece of the stimulus; the major tax cut, much larger than bonus depreciation, was an individual tax rebate. As the recession continued, a much larger stimulus measure was adopted in 2009 (the American Recovery and Reinvestment Act, P.L. 111-5 ). It extended bonus depreciation for an additional year, through 2009. Bonus depreciation was only a minor part of a larger package that included a two-year individual tax credit aimed at low-income individuals (the Making Work Pay Credit) and spending increases that were much larger than the tax reductions. Bonus depreciation has continued to be extended. It expired in 2010 but was extended retroactively through 2010 by the Small Business Jobs Act of 2010 ( P.L. 111-240 ), enacted at the end of September 2010.