is any asset that produces benefits in future years should be capital
ized in income tax theory. But that principle becomes extremely
ambiguous in practice. For example, the IRS has battled companies
over whether or本文来自辣%文&论@文^网原文请找腾讯752018766 . On the one hand, advertising and
research and development expenses are immediately deducted under
current rules, yet they produce benefits in future years. On the other
hand, the tax law requires capitalization of numerous expenses that
taxpayers think of as current expenses.
The second key problem with capitalization is determining the time
period and method for which each asset should be deducted. In
income tax theory, depreciation deductions should match an asset’s
obsolescence over time. But every asset is different, and new types of
assets are being invented all the time, so rough approximations must
be used. For newer technologies, the asset classification system is
long out-of-date. But even up-to-date depreciation schedules would
be inaccurate because of the distortionary effect of inflation.
Depreciation plays an important role in corporate tax sheltering. A
basic strategy is to artificially raise the basis of an asset to increase
future depreciation deductions. (“Basis”is generally the original cost
less accumulated depreciation). This strategy was used in Enron’s
Teresa tax deal in 1997 (JCT 2003a: 165, 173–74). Enron and an
investment bank set up a partnership to which Enron contributed its
Houston North office building. Through complex transactions, Enron
was able to shift $1 billion in basis from a nondepreciable asset to the
office building and other depreciable assets. Similarly, Enron deals
Tammy 1 and Tammy 2 involved shifting about $2 billion in basis
from nondepreciable to depreciable assets to gain increased depre
ciation deductions (JCT 2003a: 221, 234).
A business cash-flow tax would eliminate capitalization and related
concepts such as depreciation. Basis could not be shifted from some
assets to others as under the Enron deals because asset basis is always
zero under a cash-flow tax. Businesses would include the full price of
asset sales in taxable receipts, and would deduct the full cost when
purchased. All business purchases would be treated the same way and
immediately deducted. Partnerships would be taxed the same as other
business entities so there would be no advantages in shifting assets to
them. Expensing would create tax neutrality across all types of assets.
Capital Gains
Capital gains taxation has caused complexities and distortions
throughout the history of the income tax. As early as 1944, a Treasury
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