I believe your are on to the exact issue that is holding this idea back. In a year of economic downturn those "evil" companies would receive massive checks from the government and the optics would be really bad for the politicians.

The silliest thing the CBO does when modeling these (and all other) policy decisions is that they assume zero adaptations by individuals or companies. Companies in particular can manipulate their stock price as easily as they can their books, perhaps easier. Look at the effect of a single tweet on TSLA's price.

Bill Coyle said:

Capitalism is the best economic system we have. But like any other system, whether it is democracy, your church or the little league club in town, it requires an ethical underpinning. Absent an ethical underpinning, Capitalism can be as corrupt and rapacious as any other system.

But is is not the "system's fault" it is the fault and the failings of the participants.

All the gov't interference, regulation and redistribution in the world will not fix that.[/quote]

A very insightful statement Bill.

Jg

Hmmm. For example? You said a mouthful. I suspect you mean private equity firms?

Chip, you said a mouthful. One thing at a time. Give us an example of a ruthless VC? (I suspect you mean PE or perhaps mezz lenders?

Hmmm. For example? You said a mouthful. I suspect you mean private equity firms?

Maybe it’s been posted already but Greg seems to have done the impossible…get Mike and Chip on the same side of an issue.

You forgot a very big #11: Those corporations buying new will sell them in 5-10 years for half or a quarter of what they paid and we get to buy them and keep them in the pool. Then 5-10 years later the cycle continues....

Chip-

Just takes a common enemy.

As for Bonus Depreciation, it seems that some think this is a give away by the government. It should be mentioned that there is never a free lunch when dealing with the government.
I’m not a CPA, and I hope some will chime in.
It is my understanding that BD was created to entice people to purchase depreciable items for business use by allowing up to 100% depreciation to be taken in one tax year instead of 5 or 7.
There is only 100% depreciation available. Everyone, no matter what schedule used, only gets 100%. Everyone will have the same recap issues when liquidating a fully depreciated asset. The idea was to entice people with legitimate business use to purchase new equipment, vehicles etc for their business, thereby spurring the sales of this equipment, benefiting the supply chain, while, at the same time, allowing these businesses to grow, hopefully employing more people etc.
No.Free.Lunch.
Can this rule be scammed? I’m sure. But you’d better be able to defend it in an IRS Audit
I know this is a simplistic description. For a full explanation read the tax code.

Be gentle, I’m sensitive.

Robert T.

Depreciation is basically a means to encourage loans by taxing you even if you don't make a profit.

Consider a water well driller who buys a rig for $250K. In their first year, they take in $250K gross profit. Great, they broke even when considering the cost of the rig.

Nope, not according to tax law. The rig has a depreciation of, say, 10 years, so they only get to depreciate 10% of it the first year (I'm simplifying the rules here for illustration). So they can only deduct $25K for the rig each year. Thus the IRS said they made $225K, please pay taxes on that "profit", which they actually don't have. They are actually out negative cash despite working hard.

In contrast, if they use a loan to buy the equipment, then they have cash left to pay the taxes. But they have to pay the interest. Banks win.

The second way depreciation hurts is time value of money. If the property has a long life time, the dollars at the end are not worth the same at the beginning. You only get 100% of the numerical total back when summed over the years, not the net present value. This is particularly true for commercial real estate with a 39 year life time. The net effect is that you only get about 50% of the true value back against your taxes depending on inflation. A $1M investment will return about $25K depreciation every year for 39 years, but that sequence is worth only about $500K in present day dollars. In essence, you paid taxes on "profit" that is half the property value that you never really got. You can lose money and owe taxes overall.

I took advantage of the bonus depreciation when I bought my last airplane. 100% the very first year. I paid cash. Those who think bonus depreciation is a wind fall fail to realize there is no money in my pocket, just dollar for dollar off my taxes the first year. 100% bonus depreciation is the only true dollar for dollar tax treatment there is.

Mike C.

The removal of 1031 like-kind exchanges for aircraft certainly stopped the music for a few folks. I'm not smart enough to know what they are now doing instead.

Jim,
I think that they are selling, recapturing, then buying and depreciating in the same tax year. An offset, but I’m sure it’s not as tax efficient as a 1031 exchange.
I think.

Robert T

It's even worse when you consider buying inventory. At any given time I have a few hundred grand worth of inventory on the shelf that I have to pay for but I can't deduct the cost. So if I have $500k in inventory, made $500k in profit which I spent to buy the inventory (leaving me with a $0 bank balance), I owe $250k in tax. I can't depreciate my inventory (in fact I get taxed on it!!). So where do I get the money to pay the tax on my $500k of "profit"? I have to borrow it! It's insane.

Legal tax avoidance in action:

https://www.cnn.com/2021/11/09/business ... index.html

Explains Mike's wealth verus cash/income point.

I think it's fascinating that we now how have a conversation here on BT defending capitalism. The defense has arisen because of either overt or implied criticism. As a way of describing and organizing economic activity it certainly isn't perfect but it also demonstrably superior to methods whereby a few "more informed" (or politically powerful - you pick) people make the decisions.

A few random thoughts:

-those that describe "depreciation" as "costing" the government money necessarily come from a position wherein they believe all property belongs to the government. Efforts to deny this result in reductio ad absurdum arguments.

-related to the above it's important to realize that all systems of taxation intend to do at least three things: redistribute income and wealth, raise funds to provide for "necessary" government services", and manipulate behavior. I'd argue that behavior manipulation is at least as important in most policy maker's minds as providing for services. But then I believe that as a 63 year old who has been around the process a long time.

-"Ruthless" is in the eye of the beholder. I think by "ruthless" in this discussion most would mean a single minded focus on the creation of wealth. This single mindedness must, necessarily, not be overly concerned with the losers in the economic battle. But, when one criticizes Private Equity, as an example, one needs to understand that PE money doesn't primarily come from "the rich" (those evil people who through dint of effort, risk and luck). As an aside, inherited wealth is "luck" as what else could it be? But, I digress. Most PE money comes from ordinary individuals who are saving and investing through IRA's, 401k's, Pension funds and the like. So, often, those who are upset about the economic activity of PE and related entities are the ones demanding it.

-Not to get into religion but I think there is a very practical, worldly, reason why the early church designated "envy" as one of its seven "deadliest" sins. It produces nothing but division, strife, bitterness and "envy" (a related sin). In economic terms there are many who are caught up in this in one way or another. The lucky few who focus on themselves, instead of others, and work to improve their own situation, tend to be economic winners in a relative way regardless of time, place or starting position.

-It's important to know, understand and use the rules. For example those that criticize the use of PPP funds for their own self interest are no different than those that criticize the use of "depreciation" rules in that there is a tinge to the argument that it is morally, ethically or commons sense wrong. I'd argue the opposite. Knowing the rules, and using them for your benefit is the height of wisdom. Rules, whatever they are, create positive leverage if used to advance your individual goals. It's a bit like Sean's friend who argues that if he doesn't use other's money to build his business he's at a competitive disadvantage vis a vis those who do. That's true if the money comes with rules Sean can live with just as it's true that those who use depreciation, tax rules, free government handouts (PPP) and so on.