Send to a Friend
Can depreciation be considered a subsidy?
For those that don’t have a clear understanding of depreciation I’ll give a brief example. A small business earns $30,000 in gross profit (revenue – cost of goods). After expenses (insurance, employees, energy, etc.) they earn $10,000. During the year however, they had to replace or add a piece of equipment classed as capital equipment (for simplicity we’ll say it is depreciated over ten years) for a cost of $10,000. So depreciation expense is $1,000 leaving them with a $9,000 profit for tax purposes. But they have zero money in thier pocket. They are paying taxes on money they don’t have.
Some Republicans want to change the tax to allow capital equipment to be expensed (written off in the first year). Democrats are calling this a ‘subsidy’. The difference is whether you pay the tax on $9,000 you don’t have or whether you pay tax on zero (which is what you really have). Can the tax on what you really have left in your pocket, be called a subsidy?
Using Fluther
or