Postwar Taxation and Economic Progress

By Harold M. Groves | Go to book overview
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using actual experience.1 It might be well to ease into this program with partial retention of percentage depletion for a period.


Conclusion

More latitude in the timing of deductions for depreciation and obsolescence should be granted. Less attention to the calendar year in income-tax accounting would reduce the argument and litigation over the proper amounts of depreciation and obsolescence attributable to the operation of any one period. Shortening the write-off period for these impairments of capital value promotes economic progress by reducing resistance to the purchase of improved equipment. On the other hand, depletion allowances, in the opinion of most disinterested persons, are not only notoriously generous but frequently are so computed that they total more than the full cost of the assets. The best ultimate solution in this case would seem to be the allowance of depletion on the basis of cost, with a carry-back if the period of allowance proves too short. Accelerated depreciation (as in the 5-year amortization provision for certain war capital) could be used to promote investment during a depression, and, in extreme cases, its use for such purposes is recommended.

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1
Thus, if a gold mine costing $100,000 were estimated to yield 10,000 units per year for 10 years, a capital value of $1 would be assigned to each unit. Now if the mine "played out" earlier than expected so that it produced only 50,000 units, the past income-tax returns would be reopened to allow depletion at $2 per unit rather than $1.

-164-

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