Re: tax on capital

["James R. Olson, jr." <jhavok@xxxxxxxx>]

At 12:37 PM 6/2/03 -0700, John O'Donnell wrote:
> Again, no. Depreciation is both an accounting device and real decay of
>asset value. Market value is market value as represented by the sum of the
>equity and debt, not an accounting of the cost of the capacity less
>accounting depreciation.

OK, if I understand you right, the tax would not be on debt per se, but
rather on the original cost of the production facility, measured by the
original debt necessary to build it.  So there would be no depreciation due
to either accounting practices, payment of the debt, or actual decay of the
plant.

If a decayed plant was sold, the new owner would then be taxed according to
the amount of debt he took on in order to make the purchase, and if he
rebuilt it, then the tax would rise to match that investment.  That looks
like it could be exploited by selling a plant back and forth between
holding companies.  That is something that gets done today in order to
inflate the apparent market value of properties.

Also, if upgrades were made out of the income stream, they would not be
taxed, but if they were made using debt, there would be a perpetual tax on
them, and if they were made using equity, there would be a tax which would
be proportional to the success of the company.

That would favor gradual improvements of existing facilities over new
building, and slow expansion over fast.  I can see where that might have
some benefits in the long term, although it would also tend to favor
existing enterprises over new ones, and tend to inhibit radically new
methods of production.

With inflation, taxes on old debt would be lower than taxes on new debt.
That would tend to make deflation more of a threat to established
businesses.
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