Investment Decisions and Taxes.

Abstract The article considers how the choice of the method of write-off and investment tax credit affect the investment decisions of firms in the United States. There is a general agreement that the income tax policies of the federal government influence the type and the levels of investments made by corporations, subject to income tax. With no tax deduction the investor is indifferent between the long-and short-lived investments since they have equal present values. Balancing the possibility of misinterpretation is the fact that assuming there is a present tax liability there is less risk in a tax credit, or an immediate write-off, than with depreciation write-offs that require profitable operations in the future for the write-offs to be of value. One objective of this paper has been to question some of the conclusions of previous authors writing on the subject of depreciation, taxes and incentives to invest. To accomplish this objective accountants need to understand more completely the effects of the different possible tax provisions on the measures used by the businessman to make his decisions, and the effects on his attitudes towards making investments.