The Tax Treatment of Capital Assets and Its Effect on Growth
Congress is debating major reforms of the corporate and individual income taxes. One expressed goal of the exercise is to promote economic growth while lowering the deficit. Growth is key. Without it, employment and incomes will suffer, and the hoped-for tax revenue will not appear. Proper tax treatment of the cost of plant, equipment, and buildings is an important and underappreciated prerequisite for a pro-growth tax system.
This paper seeks to explain the nature of capital cost recovery as it is currently treated by business planners, accountants, and the tax code, and to describe the reforms needed to produce the best economic and budget outcomes.