Pope Francis' upcoming climate change encyclical 'Laudato Sii' (Praised Be)

[LeafByNiggle]

But the depreciation is appropriate for the bike factory. They would be harmed if they were forced to use a faster depreciation. Now I’m not saying there aren’t loopholes to be closed/tightened, but it’s more the exception than the rule.

I think you have it backwards. Companies prefer faster depreciation. Slow depreciation means they get a smaller deduction spread over many years.

In general, depreciation is appropriate for any expenditure that buys a long-lasting asset. Without the special provisions for oil companies, they would have to depreciate the cost of drilling equipment that lasts many years. But because of the laws made just for them, they get to deduct the entire cost up-front. Other companies would love to have this privilege.

 

[Ridgerunner]

I think you have it backwards. Companies prefer faster depreciation. Slow depreciation means they get a smaller deduction spread over many years.

In general, depreciation is appropriate for any expenditure that buys a long-lasting asset. Without the special provisions for oil companies, they would have to depreciate the cost of drilling equipment that lasts many years. But because of the laws made just for them, they get to deduct the entire cost up-front. Other companies would love to have this privilege.

Companies don’t always prefer immediate deductions over smaller ones spread over years. Under generally accepted accounting principles, as I understand them, big upfront deductions can hit the bottom line like a ton of bricks, making the company look bad. Generally speaking, companies like to show slow uptrends in earnings over sudden and unexpected additions or subtractions from their bottom lines.

It is my impression that the drilling deduction is not for equipment that lasts but at least fundamentally for things that don’t. And it isn’t as if they never “recapture” the profitability that’s immediately punched by upfront costs. They do. A deduction is worthless without profits somewhere or sometime to deduct them from. So if I get a big deduction this year, I’m going to take a bigger tax hit next year than I would have.

 

[Theo520]

I think you have it backwards. Companies prefer faster depreciation. Slow depreciation means they get a smaller deduction spread over many years.

In general, depreciation is appropriate for any expenditure that buys a long-lasting asset. Without the special provisions for oil companies, they would have to depreciate the cost of drilling equipment that lasts many years. But because of the laws made just for them, they get to deduct the entire cost up-front. Other companies would love to have this privilege.

A bicycle builder would take out a loan to buy the equipment, maybe payable over 10yrs.

Increased revenue from that equipment trickles in over the same 10 yrs, not during the first year. If they were a start-up they might not have any revenue that year.

Thus they would prefer to deduct the major equipment expense against the revenue it generates over time and as they are making the loan payments. If they deducted all during the first year when there was very little revenue, they likely don’t have enough income to off set such a large expense.

In general you want your tax deductions to line up with future revenue, so you have something to deduct against.

 

[lynnvinc]

They are going hog wild with fracking in my area. Anyone not into EV’s, solar panels, wind energy and/or energy/resource efficiency/conservation (with or without tax breaks and subsidies) is complicit in destroying the environment and in harming and killing people.

Those who pooh-pooh victims of these types of harms claiming there is no such thing as environmental harms (or when specific ones are presented discount those, then give some vague platitudes about how, yes, we need to be good stewards of God’s creation) are shameless.

Read Laudato Si – the Pope at least understands all these harms and the human costs. The disrespect for him and his encyclical here is shameless and regrettable for life on earth.

 

[JButky]

Anyone not into EV’s, solar panels, wind energy and/or energy/resource efficiency/conservation (with or without tax breaks and subsidies) is complicit in destroying the environment and in harming and killing people.

That’s really the broadest brush I’ve seen used so far. There are just as many articles out there that demonstrate the damaging effects of these technologies you mention as well; in some cases they’re worse. there are all sorts of reports on their Ineffecient use of resources, killing wildlife, poisoning the environment more than CO2 and hurting the poor more directly. These answers are currently not the solution. They may be at some point in the future if scientists can figure out how to use them correctly. But right now these solutions are worse than CO2 emmissions.

If you google any of these, you will finds tons of info on pollution caused by “green” energy. It’s not the solution. Here’s one sample:

wsj.com/articles/SB10001424127887324128504578346913994914472

So, what is the good solution if this is a moral obligation? I don’t believe there is one with our current technology…And that is a problem given what the encyclical says.

 

[Ridgerunner]

They are going hog wild with fracking in my area. Anyone not into EV’s, solar panels, wind energy and/or energy/resource efficiency/conservation (with or without tax breaks and subsidies) is complicit in destroying the environment and in harming and killing people.

Those who pooh-pooh victims of these types of harms claiming there is no such thing as environmental harms (or when specific ones are presented discount those, then give some vague platitudes about how, yes, we need to be good stewards of God’s creation) are shameless.

Read Laudato Si – the Pope at least understands all these harms and the human costs. The disrespect for him and his encyclical here is shameless and regrettable for life on earth.

Give us a credible source for the body count so we can examine it.

Nobody is showing disrespect for the Pope. Some disagree with the assertion of fact contained in the encyclical, notwithstanding that the climate change assertion is hedged just a bit.

 

[estesbob]

They are going hog wild with fracking in my area. Anyone not into EV’s, solar panels, wind energy and/or energy/resource efficiency/conservation (with or without tax breaks and subsidies) is complicit in destroying the environment and in harming and killing people.

Those who pooh-pooh victims of these types of harms claiming there is no such thing as environmental harms (or when specific ones are presented discount those, then give some vague platitudes about how, yes, we need to be good stewards of God’s creation) are shameless.

Read Laudato Si – the Pope at least understands all these harms and the human costs. The disrespect for him and his encyclical here is shameless and regrettable for life on earth.

There are no harms from Fracking other than those that I’ve always been connected to the extraction industry. The risk or small and mostly concentrated in the immediate area surrounding the wellhead . Fracking has been a boon for our economy providing much-needed jobs and cheaper oil and natural gas that lowers the price of all goods and services.

 

[zz912]

In other words, the oil business is a risky business. And the government takes steps to offset that risk with an added artificial benefit. Do you think every risky business should have the government taking steps to shield them from their risk of doing business? Because that is not the case right now.

I agree. The government subsidizes drug companies too. But it does not subsidize a company that goes way out on a limb to develop a fancy new unicycle in hopes that the public will suddenly go crazy for unicycles. For that business risk there is no shielding by the government.

You’re missing the underlying rational.

You’re trying to compare two different types of risk together which are not the same. There is a fundamental difference in production risk (actually generating what you wish to sell) and revenue risk (selling your product).

The builder of the fancy new unicycle won’t be buying any equipment that has a high probability it will never produce unicycles. He has a risk that he can’t sell his unicycles, not that they won’t be manufactured with his equipment he purchased. (revenue risk)

The drug/oil company is sinking millions into equipment and other expenses in the HOPE that it will produce a product they can then sell. (production risk). While GAAP doesn’t follow along with tax law, tax law is actually in line with GAAP on this one. Tax law is recognizing that those companies are expending huge amounts of money on items that may never generate product. It also follows GAAP when it has deprecation for items that WILL produce product that can be sold (irrespective of if it is sold).

The underlying principle is that the equipment for oil/drug companies may never produce inventory for sale, while the unicycle machine will produce inventory. Now once the drug/oil company reaches a point in development, when they realize they will most likely receive inventory to sell, they THEN have to start capitalizing costs and depreciating them.

One other point, tax law is actually very favorable to the unicycle builder. There is a provision for Section 179 deductions where up to $500k of equipment can be expensed in the first year if the business chooses. This covers a significant amount of equipment purchases (or at least a large % of a single purchase).

Final point, depreciation vs expensing is NOT a subsidy. It only changes WHEN an expense is taken for tax purposes. If a business does not get the expense deduction now, they will get it over the next 10-20 years. It doesn’t dramatically change the eventual tax amount due (generally), it just helps businesses with cash-flow problems that would arise from spending a large amount of money for equipment, but never getting inventory to sell from it.

 

[zz912]

Companies don’t always prefer immediate deductions over smaller ones spread over years. Under generally accepted accounting principles, as I understand them, big upfront deductions can hit the bottom line like a ton of bricks, making the company look bad. Generally speaking, companies like to show slow uptrends in earnings over sudden and unexpected additions or subtractions from their bottom lines.

Technically, under GAAP, depreciation is straight line, and the only question is if the expense should be fully realized in the current year or depreciated over several years based on a realistic expectation that inventory will be realized from the purchase. In tax law depreciation schedules can vary, along with Section 179 deductions and accelerated depreciation

 

[zz912]

As for the unicycle point, they are able to deduct their R&D costs as a business expense, but if they buy a large factory and tool up to make these unicycles, the cost of that factory is a capital expenditure, and can only be depreciated over time. This is where oil companies get a special break. They can buy equipment used in drilling that would normally be a capital expenditure and they can expense it completely and immediately.

Because the unicycle company KNOWS they will receive inventory to sell, whereas the oil company has a significant risk they will not receive a drop of oil from that capital expenditure.

 

[estesbob]

Technically, under GAAP, depreciation is straight line, and the only question is if the expense should be fully realized in the current year or depreciated over several years based on a realistic expectation that inventory will be realized from the purchase. In tax law depreciation schedules can vary, along with Section 179 deductions and accelerated depreciation

The Oil Companies are getting hit very hard with the new rules concerning repairs vs capitalization as laid on in T.D, 9636

 

[LeafByNiggle]

Because the unicycle company KNOWS they will receive inventory to sell, whereas the oil company has a significant risk they will not receive a drop of oil from that capital expenditure.

The unicycle may know they can make lots of unicycles, but they do not know that anyone will buy them. They are undertaking just as much of a risk in making more unicycles than the market wants to buy.

And by the way, with modern methods of exploration, the risk of a dry hole is vastly reduced. Their risk is overstated. But even if there is a risk, why should the government shield them from it?

 

[rmartensjr]

Would those of you who want to debate tax theory please take it to a different thread, please?