Unfinished Business of the 1986 Tax Reform Act: An Effective Tax Rate Analysis of Current Issues in the Taxation of Capital Income

Abstract

Gravelle (1989) argues that the 1986 Act reduced (but did not eliminate) the corporate/noncorporate distortion. 3 More formally, the cost of capital is the return that equates the discounted present value of the investment's expected cash flow with the investment's cost, i.e., it is the pre-tax internal rate of return. It is the return on the last dollar invested in equilibrium because the investor will continue to undertake projects as long as the present value of the projects' cash flows exceed their cost. 4 Economic depreciation is the rate at which the value of an asset falls as the asset ages (Hulten and Wykoff, 1996; Fraumeni, 1997). 5 Economic income is a measure of a taxpayer's real economic well-being over some time period, typically taken to be one year. It is the taxpayer's consumption plus changes in his wealth. See Goode (1977). 6 The present value of depreciation at rate δ is ∫δe-δt e-(r-π)t dt, where the flow is discounted by a real rate to reflect indexing. Integrating gives the expression in the text. 7 A positive ITC also lowers the effective tax rate below the statutory tax rate.

Measuring the Burden of the Corporate Income Tax Under Imperfect Competition

“…We obtain asset level e¤ective tax rates (ET R at ) from Fullerton and Henderson (1985) and Mackie (2002). Both papers follow the Hall-and-Jorgenson cost-of-capital approach and compute the e¤ective marginal corporate tax rates for 34 types of investment in equipment and nonresidential structures.…”

“…Cross-time variation in e¤ective tax rates comes from two sources: changes in the tax system due to the Tax Reform Act of 1986 (TRA86) and changes in macroeconomic conditions re ‡ected in the real interest and in ‡ation rates. 8 The tax rates in Fullerton and Henderson (1985) are calculated for 1982 while those in Mackie (2002) are calculated for 1992 and 1997. Both before and after TRA86, there is variation in e¤ective tax rates across assets as a result of di¤erences in depreciation schedules.…”

“…While this industry classi…cation is not as re…ned as the BEA's 3-digit SICs, it contains more industries than typically used in the e¤ective tax rate literature. (see, for example, Gravelle (1994), Mackie (2002) and Gruber and Rauh (2007)). Table 3 reports the estimated e¤ects of e¤ective marginal tax rates and concentration ratios on the weekly wage.…”

Company Income Tax and Investment Decisions: A Behavioural Approach

“…2 The portion of the profits of non -Nigerian companies derived from such companies' operations in Nigeria 2.3. 3 Dividends, interests or royalties due to non -Nigeria companies which are assessed at 10 percent [withholding] tax rate on gross amount due and only the net is payable to the respective companies.…”

Measuring tax incentives for R&D

“…This does not change the fact that intangible R&D capital, as opposed to R&D inputs, cannot be purchased on the market since the R&D contractor charges for the input (e.g., dollars per hour of service) rather than charging for the finished output-R&D capital. 6 See, for example, King and Fullerton (1984), Boadway et al (1984) and, more recently, Mackie (2002). 7 See, for example, Wilson (2005), Griffith et al (1995), Gordon andTchilinguirian (1998), andMackie (2002).…”