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Statement by the President on the New Tax Depreciation Schedules.
July 12, 1962

THE Treasury has today completed its work on the first administrative modernization of federal tax depreciation schedules and procedures in the twenty years since the present guidelines were issued. The new schedules, which will go into effect immediately, will automatically permit more rapid and more realistic depreciation than is presently taken on 70 to 80 percent of the machinery and equipment now used by American businessmen and farmers. The "tax cut" these changes will make possible—the net reduction in tax liabilities—will reach $ 1 1/2 billion in the first year.

Although the Executive Branch has long been authorized by statute to allow reasonable deductions for depreciation based on obsolescence as well as wear and tear, the Internal Revenue’s Bulletin F has never been changed since its publication in 1942, despite the vast and apparent changes in the rate at which modern machinery in a new age of technology can become obsolescent and require replacement. As a result, Americanbusinessmen have been handicapped in their efforts to expand and modernize their plants, to lay aside funds for reinvestment and to compete with the efficient, modern plants of other industrial nations.

The more realistic view of an asset’s depreciable life, as contained in today’s new guidelines, suggests schedules which average (for manufacturing industry) 32 percent less than those which have been covered in Bulletin f since 1942—and 21 percent less even than those currently in use by manufacturers covered in the Treasury depreciation survey.

In addition to these new schedules, the new rules issued today give our businessmen much greater freedom and flexibility in determining for themselves the rate at which their equipment is to be written off for tax purposes. Hereafter, that rate will not be questioned so long as it is consistent with actual practice in retiring and replacing machines. By encouraging American business to replace its machinery more rapidly, we hope to make American products more cost-competitive, to step up our rate of recovery and growth and to provide expanded job opportunities for all American workers.

Business spokesmen who have long urged this step estimate that the stimulus to new investment will be far greater—perhaps as much as four times greater—than the $1.5 billion made available. In any event, it is clear that at least an equal amount will go into new income-producing investment and eventually return to the government in tax revenues most, if not all, of the initial costs.

This is a permanent change in the light of technological advance. Until these long-standing and outmoded handicaps to modernization were removed, it was difficult for American business to achieve its maximum productivity—and the highest possible productivity is urgently needed today to keep our costs and prices competitive with those of other nations, and to expand our economy fast enough to provide jobs for all who want them.

This is only part of the solution. In addition to modern and realistic depreciable lives, most major industrialized nations provide a special tax incentive for investment. The investment credit contained in the pending Tax Bill is needed to put American producers on a comparable tax footing with their foreign competitors, to increase our share of both foreign and domestic markets, and thus protect our balance of international payments and gold reserves.

The reform announced today has been carried out as quickly as possible, and goes as far as it is administratively possible to go to meet the investment needs of American business. I am hopeful that the Congress will do its part by enacting the investment credit.

NOTE: An investment credit tax incentive was enacted as section a of the Internal Revenue Act of 1962, approved by the President on October 16, 1962 (Public Law 87-834, 76 Stat. 960).

Earlier, on January 15, the President announced a new depreciation schedule for machinery and equipment used by apparel manufacturers under which depreciable lives would average about 40 percent shorter than those prescribed by the Internal Revenue Service rules which had been in effect since 1942.