Accelerated Depreciation: Tax Expenditure or Proper Allowance for Measuring Net Income?

Abstract

Since the 1950s, it has become fashionable to attack various provisions of the Internal Revenue Code by calling them subsidies rather than proper means of measuring taxable income. These subsidies through Code provisions have come to be referred to as tax expenditures, a term coined by Professor Stanley Surrey. This Article studies the extent to which accelerated depreciation accurately reflects net income. It does so by reference to the traditional yardsticks against which we must scrutinize all cost recovery methods: the goal of measuring an individual's ability to pay the costs of government and the constraints accepted as essential to our tax system, including the doctrine of realization and the cash method of accounting. The thesis of this Article is that some amount of accelerated depreciation (although not necessarily the full amount allowable under all of the provisions of the Code) is a proper deduction in determining net income and provides a more accurate statement of net income than straight line or decelerated depreciation methods.