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DOCOUET RESONE
05955 - (B136636S] f8eLIJtLD 4/a*/
Investment Tax Credit: Unresolved Issues. PLD-78-40; B-114802.
Bay 8, 197e. Released June 8. 1978. 34 pp. + 4 appendices (15
pp.).
Roport to Rep. Charles A. Vanik, Chairman, House Committee on
Ways and Beans: Trade Subcommittee; by 3let B. Staats,
Comptroller general.
Issue Area: Tax Policy (1500).
Contact: Program ALalysis Div.
Organization Concerned: Department of the Treasury.
Congressional Relevance: House Committee on Vays an# Means:
Trade Subcommittee; House Committee on ays and Beans;
Senate Committee on Finance. Rep. Charles A. Vank.
Authority: Tax Reduction Act of 1975.
In an effort to stimulate economic growth, the
administration proposed that the temporary 10% -investment credit
be made permanent and extended. Previous studies of Investment
behavior were evaluated to determine the role of the investment
tax credit i promoting stability and growth.
Findings/Conclusions: Since 1962, when the investment tax credit
was enacted, gross private domestic investment as a percentage
of the Eation's economic output has nit changed appreciably. Two
areas cf conrern regarding the level of investment spending are
shortrun economic recovery and future productivity gains.
Studies revealed that: about 2 to 4 years is required for a
significant response in investment expenditures to tax credit
changes; a large portion of the credit goes to reward investment
that would have been Rade whether or not there was such a
credit; the major thrust of thQ credit is tc provide incentive
to long-term economic grouth; 4nd the credit encourages
investment in new, more productive equipment and encourages a
greater proportion of capital investment in equipment. However,
the credit may distort normal market forces and lead to more
intensive use of capital at th- expense of labor, affect rates
of return on assets, allow additional tax writeoffs, and bypass
businesses which do not require large capital investments. Twc
studies suggested that the method of financing the credit may
lead to changes in capital costs, in redistribution of wealth,
and in consumer behavior. Recommendations: The Congress should
consider the investment tax credit primarily as a tool to
pro--ote capital formation and economic growth in the long run
and consider the following possible changes: applying the credit
to other types of investment such as structvres and ucrkforce
training, making the credit available to fix:as currently making
small profits but growing ropidly, and further research and
analysis on the effectiveness of the credit as ar economic
stabilization device. (HTV)](ViewImageLocal?handle=hein.gao/gaobaaxgl0001&div=1&collection=&method=preview&ext=.png&size=3)