Abstract
This article takes a middle ground and asks whether a realization-based income tax (RBIT) base has intrinsic or normative structural and accounting principles that indicate a third direction for U.S. cost recovery policy to take. In the context of capital-financed, short-lived, and completely wasting assets this article answers that question in the affirmative.
This article assumes that normative capital cost recovery principles for a realization-based income tax base may be determined by extrapolating from a deep analysis of the capital formation, capital recovery and realization principles just described. This article does not treat these principles merely as practical deviations from a Haig-Simons income tax, but as the normative structural and accounting features of a unique and functionally discrete tax base. Rather than attempting to correct or adjust the U.S. RBIT in order to emulate or replicate the financial or economic characteristics of an accretion-measured income tax (AMIT), this article shows how a particular object of RBIT capital income taxation policy—capital cost recovery for short-lived completely wasting assets—can be structured using these normative principles.
This article adopts three major analytical assumptions. First, normative RBIT base structural and accounting principles can be best understood through a comparative analysis of those principles and their functional equivalents in AMIT and cash-flow measured income tax (CFIT) bases. Therefore, this article adopts a comparative approach to analyzing RBIT base capital income taxation policy in general and cost recovery policy in particular. Second, RBIT base cost recovery methods themselves should be analyzed in a comparative manner, and such an analysis must necessarily take place in a common economic context. Capital-financed investment was chosen for this context because capital formation is a central structural principle of a RBIT base and this context allows cost recovery methods to be comparatively analyzed independently of many other tax policy issues. Third, this article financially analyzes cost recovery methods because most cost recovery methods employed in the U.S. are multi-period phenomena, and only a comparative financial analysis can meaningfully distinguish the tax policy effects of these methods from each other.
Recommended Citation
Charles T. Terry,
Normative Capital Cost Recovery for a Realization-based Income Tax,
5 Fla. Tax Rev.
(2002).
Available at: https://scholarship.law.ufl.edu/ftr/vol5/iss1/8