Depreciation Lives and Methods: Current Issues in the U.S. Capital Cost Recovery System

Brazell, David W.; Mackie, James B.

doi:10.17310/ntj.2000.3.12

Cited by 8 publications

(14 citation statements)

References 24 publications

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“…The resulting capital goods inflation rate, π , was 0.06 used on Class 3-, 5- and 7-year assets with an inflation rate of 0.03 for Class 10-, 15- and 20-year property. The economic depreciation rate, δ , came from Brazell and Mackie (2000), who proposed an economic depreciation life of 12 years for machinery and equipment and 20 years for longer lived assets such as buildings. These useful lives translate into an economic depreciation rate of 0.083 and 0.05, respectively.…”

Section: Tax Policy and The Cost Of Capitalmentioning

confidence: 99%

Accelerated tax depreciation and farm investment: evidence from Michigan

Polzin

Wolf²,

Black³

2018

AFR

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Purpose The purpose of this paper is to examine the use of accelerated depreciation deductions, which includes Section 179 and bonus depreciation, taken in the first year of asset life by Michigan farms. The frequency, value and influence of accelerated depreciation on farm investment are also analyzed. Design/methodology/approach Accrual adjusted income statements, balance sheets, depreciation schedules, and income tax information for 66 Michigan farms from 2004 to 2014 provide data for the analysis. The present value of the accelerated deduction and change in the cost of capital were calculated. Finally, investment elasticities were used to arrive at the change in investment due to accelerated depreciation. Findings Accelerated depreciation was utilized across all applicable asset classes. Section 179 was used more often than bonus depreciation in part because it was available in all the examined years. Based on actual farm business use, accelerated depreciation lowered the cost of capital for the operations resulting in an estimated increase in investment of 0.27 to 11.6 percent depending on asset class. Originality/value The data utilized are of a detail not available in previous investigations which used either aggregate data or estimated rather than the observed use of accelerated depreciation. This analysis reveals that accelerated depreciation as used by commercial farms lowers the cost of capital and thus encourages investment particularly in machinery and equipment.

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Section: Tax Policy and The Cost Of Capitalmentioning

confidence: 99%

Accelerated tax depreciation and farm investment: evidence from Michigan

Polzin

Wolf²,

Black³

2018

AFR

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“…Although tax rules at the level of the shareholder are also available, following Harper et al (1989) I consider the corporation as the relevant level for the analysis. 12 Brazell and Mackie (2000) highlight two desirable features of economic depreciation. First, it allows the investor to recover the initial investment tax free while applying the statutory tax rate to the return from that investment.…”

Section: The Tax Componentmentioning

confidence: 99%

“…Brazell and Mackie () highlight two desirable features of economic depreciation. First, it allows the investor to recover the initial investment tax free while applying the statutory tax rate to the return from that investment.…”

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confidence: 99%

Measurement and Allocation of Capital Inputs With Taxes: A Sensitivity Analysis for OECD Countries

Fatica

2015

Review of Income and Wealth

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Taxes affect the measurement of capital inputs. The paper provides an assessment of these impacts in a cross-country framework where heterogeneity of corporate taxation across industries and asset types is accounted for. The results show that taxes change the relative prices of capital types, which, in turn, has implications on the estimated capital quality and reallocation effects in the traditional growth accounting framework. Omitting tax parameters is a source of mismeasurement, particularly when the rental price of capital assets is constructed using an external rate of return, leading to biased capital costs and profits rates. It is shown that differential taxation results in a deadweight loss in terms of misallocated capital inputs, predominantly due to composition effects within industries.JEL Codes: E01, E22, H25

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“…4. For additional background on US depreciation policy, see Brazell et al (1989), Brazell and Mackie (2000), US Department of the Treasury (2000), Gravelle (2001), andCohen et al (2002).…”

Section: Jepp 31mentioning

confidence: 99%

Depreciation rules and small business longevity

Bruce

Deskins

Gurley-Calvez

2014

Journal of Entrepreneurship and Public Policy

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -When a small business purchases a capital asset, its cost for tax purposes is spread over the useful life of the asset through the process of depreciation. It has become common in the USA for policy makers to enhance depreciation rules in an effort to increase business investment in a less-costly manner than across-the-board marginal tax rate cuts. Indeed, short-term depreciation policies are often billed by policy makers as a way to save America's small businesses. However, little is known about the actual effects of depreciation policies on small business activity. This paper aims to discuss these issues. Design/methodology/approach -In this initial attempt to test the political claims regarding the importance of depreciation rules, the paper uses a 12-year panel of tax returns for Schedule C sole proprietors to empirically examine whether more generous depreciation policies influence small business activity at the extensive margin. Specifically, the paper estimates a series of multivariate models to explain sole proprietors' decisions to remain in business as functions of their financial, demographic, and tax situations, including measures of the present discounted value (PDV) of a stream of tax deductions for depreciated capital under various rule structures. Findings -Throughout the analysis, the authors are unable to find evidence that favorable depreciation rules lead to greater rates of entrepreneurial longevity among Schedule C sole proprietors. Originality/value -Discrete choice results suggest that increases in the PDV of tax reductions from depreciation (e.g. depreciating the value earlier in the recovery period) might actually lead to higher probabilities of small business exit, while survival analysis finds no clear influence of depreciation on spells of small business activity.

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Depreciation Lives and Methods: Current Issues in the U.S. Capital Cost Recovery System

Cited by 8 publications

References 24 publications

Accelerated tax depreciation and farm investment: evidence from Michigan

Accelerated tax depreciation and farm investment: evidence from Michigan

Measurement and Allocation of Capital Inputs With Taxes: A Sensitivity Analysis for OECD Countries

Depreciation rules and small business longevity

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