Accelerated Depreciation: A Proper Allowance for Measuring Net Income?!!
In a recent article in the Michigan Law Review, Douglas A. Kahn strives to demonstrate that, given the general postulates of the federal income tax, accelerated depreciation is a proper allowance for measuring net income and should not be classed as a tax expenditure. 1 His defense of accelerated depreciation is unusual if not novel, and his presentation is engaging. For anyone who shares my view that most tax expenditure stuff is mainly political rhetoric and who is sympathetic to my position that our tax system is far too harsh in taxing income from capital investments, a new plug for accelerated depreciation is not unwelcome. The Kahn analysis, I confess, can be seductive: there is comfort in being assured that accelerated depreciation, usually advocated to encourage greater investment in certain types of assets, is consistent with the neutrality principle for taxing income. I write, however, not to praise the effort of an ally but to show why it is misleading – or just plain wrong.