Notes on the Tax Treatment of Structures

55 Pages Posted: 19 Jun 2004 Last revised: 8 Sep 2010

See all articles by Roger H. Gordon

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics; Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

James R. Hines Jr.

University of Michigan; NBER

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: April 1986

Abstract

More than three quarters of the United States tangible capital stock represents structures. Tax policies potentially have a major impact on both the level and composition of investment in structures and equipment. This point is explicitly recognized in most discussions of the effects of capital income taxation. Two aspects of the taxation of structures --the relative burden placed on structures as opposed to equipment investment and the non-taxation of owner occupied housing under the income tax -- have attracted substantial attention in recent years. This paper explores these two aspects of the taxation of structures investments. While the tax system may well have a potent impact on the level and composition of structures investment, this paper argues that conventional analyses of these effects are very misleading. We reach two main conclusions. First,under current tax law, certain types of structures investment are very highly tax favored. Structures can be transferred and therefore depreciated more than once, and structures may be readily financed with tax-favored debt. Overall, itis unlikely that a significant bias towards equipment and against structures exists under current law. Second, the conventional view that the tax system is biased in favor of homeownership is wrong. Because of the possibility of "tax arbitrage" between high bracket landlords and low bracket tenants, the tax system has long favored rental over ownership for most households. The 1981 reforms by reducing the top marginal tax rate reduced this bias somewhat.

Suggested Citation

Gordon, Roger H. and Hines, James Rodger and Summers, Lawrence H., Notes on the Tax Treatment of Structures (April 1986). NBER Working Paper No. w1896. Available at SSRN: https://ssrn.com/abstract=341843

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-4828 (Phone)
858-534-7040 (Fax)

Harvard University - Department of Economics ( email )

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United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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James Rodger Hines (Contact Author)

University of Michigan ( email )

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Ann Arbor, MI 48109-1215
United States

NBER

1050 Massachusetts Avenue
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United States

Lawrence H. Summers

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States
617-495-1502 (Phone)
617-495-8550 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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