Accelerated Depreciation—Tax Expenditure or Proper Allowance for Measuring Net Income?
Since the 1950s, it has become fashionable to attack various provisions of the Internal Revenue Code by calling them "subsidies" rather than "proper" means of measuring taxable income. These "subsidies" through Code provisions have come to be referred to as "tax expenditures," a term coined by Professor Stanley Surrey in a speech he made as Assistant Secretary of the Treasury for Tax Policy on November 15, 1967. In that speech, Professor Surrey stated that our tax system often deliberately departs "from accepted concepts of net income," so that by granting exemptions, deductions, and credits that are not appropriate to an accurate determination of net income, the tax laws effectively provide what is usually accomplished by direct expenditures. In effect, the Code produces "an expenditure system described in tax language." The two principal complaints against "tax expenditures" are that they are hidden within the tax system and so do not receive the careful scrutiny to which direct expenditures are subject and that they distort the proportionate burden imposed by our progressive tax system and thereby violate the principles of horizontal and vertical equity. Under Professor Surrey's guidance, in 1968 the Treasury Department developed a "Tax Expenditure Budget" that purported to identify the tax subsidies provided by the Code and to quantify the revenue cost of each subsidy.