Taxes and intangible – a principle for reform

With the imminent passage of the tax deal, the focus of policy attention is shifting to the possibility of a larger tax reform package next year. Already, the idea is being teed-up of widen base (cut loopholes and special credits) and lower corporate rates.
From an economics point of view, that is a laudable goal. If you want to understand America’s dysfunctional industrial policy, just look at the tax code. The current tax deal is a microcosm of that situation with special treatment for a host of industries from movie productions to rum distillers to NASCAR tracks.
But there is another guiding principle of tax reform — and that is equal treatment. I would specifically extend that principle to treating investments in intangible assets the same as tangible. The tax code should not distort investment decisions by skewing it toward physical assets.
In this regard, the current tax deal is an example of how that principle should operate but doesn’t. In the stimulus bill (sec. 144(a)(12)(C)), there was a minor change to allow the use of industrial development bonds (IBDs) to finance facilities manufacturing intangible property. Before this change, only traditional factories were eligible for this program. The change would allow local government to support new facilities for software development or bio-tech research facilities, for example, as well.
That provision will expire at the end of the year — and was not included in the tax deal. This simply act of putting physical and intangible investments on the same footing was forgotten and ignored.
That is a mindset that needs to be changed as we go forward with broader tax reform.

One thought on “Taxes and intangible – a principle for reform”

  1. Intangibles in (and not in) tax extender

    This morning, the Senate Finance Committee is holding an executive session to vote on a number of tax items (called a mark-up session). The bill to be marked up would extend a number of existing tax provisions that are due…

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s