TOWARDS A MORE NEUTRAL INVESTMENT TAX CREDIT

Using 1968 data, estimates are given, by industry groups, which show that the existing investment credit is not neutral. It could be made more neutral if the following changes were made: (1) restore a basis adjustment, (2) repeal the short-lived property limitation, (3) repeal the recapture-of-prior-yearcredit provision, (4) eliminate the discrimination against public utility property, (5) repeal the net income limitation and make the credit fully refundable, (6) repeal the carryback and carryover rules, and (7) repeal the credit for used property except for reconditioning expenditures. An investment credit with these characteristics would be much simpler than the present credit and would be equivalent to an across-the-board cut in the price of new machinery and equipment. By adjusting the rate of the credit, it would be possible to provide the same average amount of investment incentive as is provided by the existing credit.