It is either the driving force behind an investment-led recovery or a government giveaway to corporations that don't need it.

It is either a stimulus to productivity or an interference with the market that skews capital away from efficient industries toward ailing ones.

The change in depreciation rules -- the most sweeping business portion of President Reagan's 1981 tax cut -- is now one of the most-debated. The president's own Treasury Department says that, under current rates of inflation, the system is "deeply flawed." And it would be altered drastically by any of the tax-simplification proposals circulating in Washington.

The debate over accelerated depreciation (or ACRS -- the Accelerated Cost Recovery System of 1981) is sure to intensify in coming months as Congress wrestles with tax simplification and economists continue to calculate exactly what effect the 1981 tax-law changes have had.

ACRS drastically shortened the lengths of time over which the cost of most equipment and structures could be deducted from current income, thus greatly reducing taxes for profitable companies. In combination with the investment tax credit (ITC), the change "front-loaded" the tax benefits that would accrue over the life of the investment. The ITC gives firms a tax credit of up to 10 percent of the cost of new equipment, but not structures.

At the time, it was seen as a way to keep inflation from eroding the value of investment. But even then, critics were warning that, if inflation fell, the tax breaks would become out-and-out subsidies. Companies might raise investment, but at a substantial cost to taxpayers.

And critics also flailed the widely varying depreciation periods for different kinds of capital -- ranging from three years for some kinds of equipment to 18 years for the longest-lived structures. These distinctions would distort investment, skewing it to the kinds of assets offering the biggest breaks, critics said. Because all investment in the long run must be financed by savings in the economy, investment tax incentives that don't increase that pool of savings merely siphon investment from one purpose to another.

The debate over accelerated depreciation has been going on for much longer than the last four years, however. Even before the notion of front-loading write-offs became law in 1954, it raised controversy.

"I'm the culprit. I drafted it against my better judgment," said former Internal Revenue Service commissioner Sheldon S. Cohen, who was a junior lawyer at the Treasury Department in the early 1950s. Proposing a greater deduction in earlier years of the investment was done with very little economic analysis at the time, he said. No one looked at whether the avowed goal of inducing businesses to modernize would be achieved.

Cohen was afraid the write-off would be a subsidy to companies then, and so were economists who opposed even greater acceleration in 1981.

When ACRS is combined with the investment tax credit, "The perverse result is to transform the corporate income tax into a very large corporate subsidy," Harvard University economists Dale W. Jorgenson and Peter Navarro wrote in early 1981. "Indeed, if the administration reached its low-inflation target, the subsidy would balloon."

Now, with inflation at its lowest point in two decades and the revenue cost of ACRS and the investment tax credit estimated at almost $50 billion this year, some are saying that's exactly what has happened. In some cases, firms in effect are writing off more than 100 percent of the cost of their investments -- although taxes on income from other kinds of assets remain high.

"ACRS jumbled up the costs of different kinds of capital to a firm," said Frank C. Wykoff, economics professor at Pomona College in Pomona, Calif. "I would be willing to say to Congress, I think you made a big mistake . . . you can be over-invested, both in the aggregate and in different kinds of capital."

Some economists and many of the business associations in Washington contend that ACRS and the tax credit are necessary to equalize the taxation of income from labor and income from capital, and that they still aren't as equitable as writing off all investment in one year would be. The two tax breaks have helped the economy by increasing investment and have let U.S. firms be more competitive abroad.

ACRS merely offsets some of the multiple taxation of corporate income that occurs because of the corporate income tax and the taxation of dividends, according to Charls E. Walker, chairman of the American Council for Capital Formation and a leading business lobbyist on tax issues.

ACRS "automatically directs a big part of the untaxed saving into new plant and equipment that supports long-term growth and productivity," Walker wrote in a recent paper. "ACRS provides the biggest supply-side bang for the buck; a company gets the tax break only if it makes qualified investment in plant or equipment."

Business spokesmen and administration officials also said during the congressional debate that ACRS would keep the economy from sliding into recession.

Edwin S. Cohen, a Washington tax lawyer testifying before Congress in behalf of the Chamber of Commerce in March 1981, said that the economy probably was heading into a recession at that very moment and that "prompt enactment of the president's program will reverse these unfavorable trends." The deep recession began four months later, just as the tax cuts were being enacted.

Since the recovery began, however, investment indeed has grown rapidly. The question is whether it was because of the business tax breaks.

Stephen K. McNees, vice president of the Federal Reserve Bank of Boston, has compiled figures showing that real business fixed investment is 32 percent above where it was at the lowest point of the recession, the fourth quarter of 1982. The average rise for the five postwar recoveries (excluding the current one) was 14 percent.

The president's budget report points out that the fast pace is not due just to the severity of the recession: Real business fixed investment is 22.3 percent above its July 1981 level, when the recession began.

Business spokesmen use those kinds of numbers to make their case that the 1981 tax incentives have been responsible for the strength of the recovery. Depreciation has made it possible to finance more investment out of cash flow, said Jack Albertine, president of the American Business Conference. ACRS and the tax credit have reduced the cost of capital, and cutting those benefits could make American companies even less competitive abroad.

The National Association of Manufacturers also points to a study indicating that "targeted" incentives, such as ACRS, are more effective in stimulating investment than are broader breaks such as a reduction in the corporate tax rate.

But business investment depends on much more than tax changes. The health of the economy and the degree to which firms can sell the goods they produce are crucial to business investment. And the level of interest rates affects investment in the same way as the tax code does, by influencing the cost of capital.

"There is no evidence that lowering the user cost of capital by taxes or by lower interest rates have a different effect on investment," said John Makin of the American Enterprise Institute. Tax changes tend to produce a one-time change in business investment that peters out after the economy adjusts to the new cost structure, he said. Historically, that weakening occurs two or three years after the enactment of the change.

A membership survey by the NAM, for example, found that the pace of economic activity was the most important factor in companies' investment decisions. Second was the cost of capital, principally interest rates. Tax incentives placed third.

Roger Brinner, chief economist for Data Resources Inc., estimates that $25 billion of the $55 billion increase in real nonresidential fixed investment from the trough of the recession in late 1982 to the end of 1984 was attributable to the recovery of final spending. Another $15 billion was accounted for by tax-law changes, and about $7.5 billion came from the cost of funds.

Further complicating those factors is the possibility that they influence each other. Some economists -- including some who work for the president -- believe that business tax breaks can raise real interest rates, either by exacerbating the federal deficit, which increases government borrowing, or by raising business credit demand.

"It appears that the high level of real interest rates is in large part attributable to the major change in business depreciation allowances for tax purposes enacted in 1981," says the 1985 annual report of the president's Council of Economic Advisers.

Economists also point to the composition of new investment to show the obvious effects of ACRS. It has varied widely, with investment in short-lived equipment growing uch faster than investments with longer write-off periods.

"The computer industry doesn't understand that a large part of the demand for their products is explained by subsidy," said Harvard's Jorgenson.

For example, inflation-adjusted investment in office equipment grew by 42 percent from its cyclical low through the end of 1984, while investment in engines and turbines fell 26 percent, according to Data Resources Inc. Similarly, investment in equipment as a whole rose 26.3 percent from its last peak, while investment in structures (which have longer write-off periods) went up only 7.6 percent.

A related result of the changes in tax law has been that effective tax rates on the income produced by different kinds of investment and in different kinds of industries vary widely.

The Treasury Department's figures say, for example, that, assuming a 5 percent rate of inflation, effective tax rates can vary from minus 8 percent for a piece of equipment depreciated over three years to 40 percent for a structure that is written off over 18 years. Similarly, an auto maker might pay an 8 percent rate on a new investment while an apparel manufacturer could pay as high as 28 percent, according to the Treasury.

"They have very seriously distorted the allocation of capital in the economy. It's a very substantial loss," said Harvard's Jorgenson.

Those differentials have cost the economy a great deal, economists say.

Alan J. Auerbach of the University of Pennsylvania said as much as 3 percent of the fixed capital stock is "wasted" because of this misallocation. A return to a more neutral tax code, with its accompanying increase in efficiency, would be the equivalent of giving the corporate sector a one-time grant of $75 billion to buy additional capital goods, he said.

Not all economists would peg the loss that high. Former Council of Economic Advisers chairman Martin S. Feldstein, now at Harvard, calls it "rather small." He said that, if Congress removed the distortionary elements of ACRS without raising overall taxes on capital, corporate profits would rise by only about 3 percent, or $3 billion.

Don Fullerton, associate professor at the University of Virginia, has calculated the effective tax rate on new investment, when individual and property taxes are combined with corporate taxes, at 30 percent. If the corporate-tax portion of that equation were eliminated -- and with it, all the deductions for interest payments, state and local taxes and depreciation -- the tax rate on corporate income would rise to 32 percent. Of course, it would be collected from shareholders, not from the corporation.

In other words, the 1981 changes in business taxes, coupled with previous breaks such as the investment tax credit, have placed the entire cost of new investment on the taxpayer. For the corporate sector as a whole, the only tax revenue coming into the Treasury's coffers is from income generated by pre-1981 investments.

"On average, across all different investments in the corporate sector, the marginal investment is subsidized," Fullerton said. "You've got this tax that isn't a tax. All it's doing is screwing up investment."