TY - JOUR AU - Gordon,Roger H. AU - Hines,James R.,Jr. AU - Summers,Lawrence H. TI - Notes on the Tax Treatment of Structures JF - National Bureau of Economic Research Working Paper Series VL - No. 1896 PY - 1987 Y2 - December 1987 UR - http://www.nber.org/papers/w1896 L1 - http://www.nber.org/papers/w1896.pdf N1 - Author contact info: Roger H. Gordon Department of Economics 0508 University of California, San Diego 9500 Gilman Drive, Dept. 0508 La Jolla, CA 92093 Tel: 858/534-4828 Fax: 858/534-7040 E-Mail: rogordon@ucsd.edu James R. Hines Department of Economics University of Michigan 343 Lorch Hall 611 Tappan Street Ann Arbor, MI 48109-1220 Tel: 734/764-2320 Fax: 734/764-2769 E-Mail: jrhines@umich.edu Lawrence H. Summers Harvard Kennedy School of Government 79 JFK Street Cambridge, MA 02138 Tel: 617/495-9322 Fax: 617/495-0436 E-Mail: lhs@harvard.edu M1 - published as Roger H. Gordon, James R. Hines, Jr., Lawrence H. Summers. "Notes on the Tax Treatment of Structures," in Martin Feldstein, ed., "The Effects of Taxation on Capital Accumulation" University of Chicago Press (1987) M2 - featured in NBER digest on 1986-07-01 AB - More than three quarters of the United States tangible capital stock represents structures. Tax policies potentially have a major impact on both the level and composition of investment in structures and equipment. This point is explicitly recognized in most discussions of the effects of capital income taxation. Two aspects of the taxation of structures --the relative burden placed on structures as opposed to equipment investment and the non-taxation of owner occupied housing under the income tax -- have attracted substantial attention in recent years. This paper explores these two aspects of the taxation of structures investments. While the tax system may well have a potent impact on the level and composition of structures investment, this paper argues that conventional analyses of these effects are very misleading. We reach two main conclusions. First,under current tax law, certain types of structures investment are very highly tax favored. Structures can be transferred and therefore depreciated more than once, and structures may be readily financed with tax-favored debt. Overall, itis unlikely that a significant bias towards equipment and against structures exists under current law. Second, the conventional view that the tax system is biased in favor of homeownership is wrong. Because of the possibility of "tax arbitrage" between high bracket landlords and low bracket tenants, the tax system has long favored rental over ownership for most households. The 1981 reforms by reducing the top marginal tax rate reduced this bias somewhat. ER -