~. ~... ~..- -..~-- ... .....-.-,
372 INCOME TAXES
Fortunately for the industry, the credit was subsequently extended to the end of 2003,
andis expectedto be extendedfurther. As a result, the AWEA anticipatesthat another 1500
to 1800 megawattsof wind-:generatingcapacity will come on line during 2003.- As Benjamin Franklin said, two things are inevitable: death and taxes. In this chapterWe
will examinethe structureof taxesin the United States.There is, of course,a wide :variety
of taxes ranging from salestaxes, gasoline taxes, and property taxes to state and federal
income taxes,and so forth. Here we will concentrateour attention on federal income taxes.
Income taxesare part of most real problems and oftenhavea substantialimpactthatmust
be considered.
First,wemust understand the way in which taxes are imposed. Chapter 11 concerning
depreciation is an integral part of this analysis, so the principles covered there must be well
understood. Then; having understood the mechanism, we will see how federal income taxes
affect our economic analysis. The various analysis techniques will be used in examples of
after-taxcalculations.
A Partner in the Business 12 INCOME TAXES
Probably the most straightforward way to understand the role of federal income taxes is
to considerthe U.S. governmentas apartnerin everybusinessactivity.As a partner,the
government shares in the profits from every successful venture. And in a somewhat more
complex way, the government shares in the losses of unprofitable ventures. The tax laws
are complex, and it is not our purpose to fully explain them. 1Instead,wewill examine the
fundamental concepts of the federal income tax laws-and we emphasize at the start that
thereareexceptionsandvariationsto almosteverystatementweshallmake!Taxable Income of Business Firms
At the mention of income taxes, one can visualize dozens of elaborate and complex calcu-
lations. And there is some truth to that vision, for there can be complexities of all sorts in
the computation of income taxes. Yet some of the difficulty is removed when one defines
incomes taxes as just another type of disbursement. Our economic analysis calculations
in prior chapters have dealt with all sorts of disbursements: operating costs, maintenance,
labor and materials, and so forth. Now we simply add one more prospective disbursement
to the list-income taxes.Taxable Income of Individuals
The amount of federal income taxes to be paid depends on taxable income and the income
tax rates. Therefore, our first concern is the definition of taxable income. To begin, one
must compute his or her gross income:Gross income=Wages, salary, etc. + Interest income + Dividends + Capi~ gains
+ Unemployment compensation + Other income- 1 Manygovernmentand privatesourcesexistthat describedetailedtaxationinformation.Theseinclude
the Internal Revenue Service (www.irs.gov), U.S. Treasury (www.treasury.gov), Commerce Clean::,
House (www.cch.com), and Research Institute of America (www.riahome.com).
----- - -