Buying tax breaks
To be given a handsome corporate tax break is one thing.To be able to buy and sell it is another. Is the latter course, which is permitted under the New Reagan tax laws, a way to encourage productive investment or merely easy money? At the moment companies appear to be going for the easy money before a November deadline ends the program's retroactive feature. The test will be whether they use the proceeds for modernization and other means of improving efficiency and output, as the administration intends.
How does it all work? Only your accountant knows for sure. But it involves what was headlined as "Little-Known Leasing Break" when Congress was considering the Reagan tax package during the summer. And it seems to have remained little known except among those standing to gain from it. These include (a) losing companies with more tax credits and deductions than they have taxes to pay and (b) profitable companies in a position to "buy" a losing company's tax benefits. This can be accomplished through new leasing rules that allow a "buyer" to purchase equipment from a "seller" and lease it back, thus both providing cash for the seller and qualifying for the seller's tax breaks.
The system is expected to bring substantial change to the financing of capital investment in the United States and add up to billions in lost federal revenue, which other taxpayers will have to offset. The supposition is that the net result will be a sufficient contribution to supply-side economics to benefit everyone in the long run. Americans without such corporate options can only hope the supposition is right.