Bubba wrote: ↑Jul 27th, '23, 12:28
Mister Moose wrote: ↑Jul 23rd, '23, 16:52
Bubba wrote: ↑Jul 21st, '23, 10:22
OK…arguing about whether something specific is or isn’t a subsidy still misses the point. All of them, whether tax credits, tax deductions, direct purchase price reduction, all of them are subsidies of one sort of another.
No. If we didn’t choose to subsidize certain behaviors, we would eliminate them all and have a flat tax with no deductions or credits of any kind.
A flat tax on what? Income? Isn't income gross revenue minus expenses? Are you going to argue expensing a capital purchase like a groomer is not a legitimate expense and therefore is a "subsidy of one sort or another"?
The choice of what constitutes a capital expenditure and what is an expense is an accounting decision (an art rather than a science).
Not really.
Once it is decided that something is capital, how it is treated in the tax code is a political decision, ie what to encourage via tax treatment. In other words, a subsidy
No. of that which one wants to encourage.
In general, expenses for items that are used up in a year are expensed immediately. Buy fuel for the groomer, deduct it immediately. Expenses for large items that last a long time are (in general) not allowed to be completely expensed in the year of purchase, but the expense must be spread out to reflect the lifetime of the item. Like a truck or a groomer, or a lift. Nothing political about it.
easyrider16 wrote: ↑Jul 27th, '23, 16:10
Yeah, again, capital expenses are normally deducted via depreciation over the life expectancy of the capital acquired. Oil companies get a special dispensation from the government where they can elect to deduct the entire amount of capital expenditure for oil drilling/exploration all at once instead of over many years.
Yes, but this does not make it a subsidy.
You can argue all you want about calling it a subsidy or not, but you can't really dispute that it is a major special benefit granted to oil companies. I'm not saying we should take it away, or that it's bad policy. But lets not be blind to what it is.
It is a special benefit whose value exceeds all the EV credits paid out in any given year. No, it is a special method of depreciation that reflect the risk, there is no net benefit over time.
The "net benefit over time"* of all accelerated depreciation is zero. Depreciation is just a timeline (greater than one year) of expensing large purchases. It affects cash flow, ie deduct me now or deduct me later. The total deduction over time is still the same. It only affects the tax year(s) in which the expense is taken. Equating a difference of tax year of a deduction method with an actual credit off the tax bill has no foundation, other than to try to justify EV subsidies to people that don't understand how our tax code works.
Big Bob wrote: ↑Jul 27th, '23, 19:10
it sounds like an accelerated rate of depreciation. They still get to deduct 100% of the cost, just over a shorter period of time.
With many multiple wells being drilled each year, over time it must balance out. And they have no idea how long these wells will produce oil/ income.
Ding Ding! No surprise this concise answer comes from someone who has actually filled out a form 4562 for depreciation on his taxes. Here we see no net benefit. Accelerated depreciation can be a cash flow benefit if equipment purchase is done unevenly, but the net effect is still no subsidy. It is not political. This is very different and distinct from an actual tax credit. The credit is never recovered by the IRS, you get to keep it. It is a credit against your total tax bill, you get to keep more dollars in your pocket. We have a different word for that and that word is - subsidy.
Easydriver cannot deduct the cost of a car he drives for personal use. If he buys an EV. the government says, 'thank you, reduce your tax bill by $7,500.' Easydriver writes a check for $7,500 less than he would otherwise that year to the IRS. That's different than depreciation. It's a real discount paid for by the government. (It doesn't even require business use) It's a subsidy.
So back to Exxon. Yes, they get a few different depreciation methods than others get, but they reflect the unique nature of their business. Commercial real estate has different depreciation rules that reflects their business. Neither one gets a subsidy. Neither one matters if you earn 500 billion or 500 thousand. It just sounds better to blame a billion dollar company if you have an agenda.
*You could argue net present value differences for uneven cash flow years, but that is too far in the weeds.
**Do not confuse cash flow with after tax cash , ie money in your pocket.