FOR POLLUTION CONTROL
by Robert G. Speidel Partner, Pittsburgh Office
Presented before an Accounting Conference of the Pennsylvania Electric Association, Pittsburgh -October 1972
It was recently estimated in Business Week magazine that industry will spend $26 billion on pollution control facilities over the next eight years. Probably a healthy slice of this $26 billion will be spent by electric utilities. Expenditures for pollution control facilities must be looked at a little differently than the usual capital expenditure. In the usual case, a capital expenditure is expected to generate enough income through production or through cost savings to return its cost plus a reasonable profit over its estimated life. With pollution control equipment, however, there is usually no such return of costs; the expenditure is purely an additional cost to the company. For this reason, the tax incentives for pollution control equipment assume particular importance—they offer about the only way, short of price or rate increases, that industry can recoup some of the cost of the equipment.
HISTORY OF ANTI-POLLUTION INCENTIVES
The first time pollution control facilities were given a tax break was in 1966, at the time the investment credit was first suspended. As you no doubt know, the investment credit provisions permit a taxpayer to reduce his tax bill by a credit of up to 7 percent of new property placed into service during the year. Pollution control facilities were exempt from the 1966 suspension and continued to be eligible for the investment credit. Since the first investment credit suspension period was relatively short, the incentive effect for pollution control facilities was of little significance. Congress dealt again with the question of pollution control incentives in the Tax Reform Act of 1969. At that time, the investment credit was terminated for all property including pollution control facilities. But a new section was added to the Code permitting a deduction for accelerated amortization of pollution control facilities over a 60-month period. In 1971, when the investment credit was again restored to the tax law, it was provided that the credit did