Super-Sized Investment Tax Incentives: A Comparative History of the ITC and the Immediate Expensing Rule

Mirit Eyal-Cohen

University of Alabama - School of Law

November 18, 2013

U. of Pittsburgh Legal Studies Research Paper No. 2013-40

A distant relative of the current immediate expensing rule is the late investment tax credit. Both investment incentives were enacted in the midst of the Cold War and the Vietnam War era in the name of economic stimuli and global competitiveness to encourage expansion through investments in equipment and machinery. Yet, soon after its enactment in 1962, the tax credit was suspended in 1966, reinstated in 1967, revoked in 1969, reinstated in 1971, increased in 1975, and was finally repealed in 1986. Throughout history, while the immediate expensing rule remained unchanged, the investment tax credit did not persist.

What is the reason for these differing legislative histories? At face value, it seems that the immediate expensing rule survived because it was promoted as a small business preference that assists small entities in utilizing their retained earnings toward expansion. The magnitude of the revenue losses from the immediate expensing rule were less cumbersome due to its modest limitations compared to the tax credit.

Yet, this paper argues that “size” is too simplistic explanation for these distinct narratives. Through the lens of comparative history, the paper scrutinizes the development of the immediate expensing rule and the investment tax credit and provides a more comprehensive picture of the different historical accounts. Specifically, the paper emphasizes that changes in tax policies that sought to utilize tax measures, such as the investment tax credit, as countercyclical tools to implement “new economics” theory for regulating inflationary forces in market economy significantly contributed to these differing outcomes.

Keywords: immediate expensing rule, investment tax credit, tax law, United States, tax history, tax policy, corporate tax, small business tax, regulation, legislative reform

JEL Classification: K34, K20, H25, H81

working papers series

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Date posted: November 19, 2013  

Suggested Citation

Eyal-Cohen, Mirit, Super-Sized Investment Tax Incentives: A Comparative History of the ITC and the Immediate Expensing Rule (November 18, 2013). U. of Pittsburgh Legal Studies Research Paper No. 2013-40. Available at SSRN: http://ssrn.com/abstract=2356260

Contact Information

Mirit Eyal-Cohen (Contact Author)
University of Alabama - School of Law ( email )
P.O. Box 870382
Tuscaloosa, AL 35487
United States
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