Tax Reform, Investment, and the Value of the Firm

The taxation of corporate assets is well understood to influence investment and firm valuation. This paper explores the consequences of postwar U.S. tax changes in a dynamic model which incorporates costs of adjustment and investor expectations of future tax reforms and macroeconomic variability.When viewed in a dynamic context, the tax code can have very different incentives than those implied by the usual static analysis. Simulation results suggest that investment is sensitive to future tax changes and business-cycle movements. The paper also illustrates the implications of this analysis for the design of tax reforms.

Perfect Taxation with Imperfect Competition

This paper analyzes features of perfect taxation also known as optimal taxation when one or more private markets is imperfectly competitive. Governments with perfect information and access to lump-sum taxes can provide corrective subsidies that render outcomes efficient in the presence of imperfect competition. Relaxing either of these two conditions removes the government's ability to support efficient resource allocation and changes the perfect policy response. When governments cannot use lump-sum taxes, perfect tax policies represent compromises between the benefits of subsidizing output in the imperfectly competitive sectors of the economy and the costs of imposing higher taxes elsewhere. This tradeoff is formally identical for ad valorem and specific taxes, even though ad valorem taxation is welfare superior to specific taxation in the presence of imperfect competition. When governments have uncertain knowledge of the degree of competition in product markets, perfect corrective tax policy is generally of smaller magnitude than that when the degree of competition is known with certainty.

Anticipated Tax Changes and the Timing of Investment

This paper analyzes the short-run and long-run effects of corporate tax changes over the last three decades and the likely consequences of proposed future tax changes. Consideration of short-run effects of tax reform on investment and market value requires a careful analysis of three elements of behavior that are normally omitted from long run analyses: the state of investor expectations, the time lags involved in putting new capital in place, and the tax law's distinctions between new and old capital. The model described in this paper considers investment in equipment and investment in plant separately, and does so under different specifications of investor expectations. Our results for the period 1954-1985 suggest that investors did take account of fluctuations in profitability, real interest rates, and the tax code in making their investment plans. We examine the consequences of the nonindexation of depreciation benefits as well as the introduction of the investment tax credit and the Accelerated Cost Recovery System by simulating the corporate sector's performance in the absence of these features. In addition, we analyze the effects of changing the tax code in 1986 along the lines proposed in the Bradley-Gephardt "Fair Tax" plan, the Treasury II plan, and the Rostenkowski plan, H.R. 3838. The simulation results suggest that all three plans would reduce fixed investment in the short run, with the reduction coming primarily in equipment. At the same time, the simulations predict large wind-falls for existing capital assets under all three reform proposals.

NICMOS Observations of the Pre-Main-Sequence Planetary Debris System HD 98800

Spectral energy distributions (SEDs) from 0.4 to 4.7 microns are presented for the two principal stellar components of HD~98800, A and B. The third major component, an extensive planetary debris system (PDS), emits > 20% of the luminosity of star B in a blackbody SED at 164 +/- 5K extending from mid-IR to millimeter-wavelengths. At 0.95 microns a preliminary upper limit of < 0.06 is obtained for the ratio of reflected light to the total from star B. This result limits the albedo of the PDS to < 0.3. Values are presented for the temperature, luminosity, and radius of each major systemic component. Remarkable similarities are found between the PDS and the interplanetary debris system around the Sun as it could have appeared a few million years after its formation.Comment: LaTeX, 9 pages with 1 encapsulated postscript figure and one specially formatted Table which is rendered as a postscript file and included as a figure. Accepted for publication in Astrophysical Journal Letter

Readout of solid-state charge qubits using a single-electron pump

A major difficulty in realizing a solid-state quantum computer is the reliable measurement of the states of the quantum registers. In this paper, we propose an efficient readout scheme making use of the resonant tunneling of a ballistic electron produced by a single electron pump. We treat the measurement interaction in detail by modeling the full spatial configuration, and show that for pumped electrons with suitably chosen energy the transmission coefficient is very sensitive to the qubit state. We further show that by using a short sequence of pumping events, coupled with a simple feedback control procedure, the qubit can be measured with high accuracy.Comment: 5 pages, revtex4, 4 eps figures. v2: published versio

The Last Best Hope for Progressivity in Tax

We argue that a spending tax, as opposed to an income or wage tax, is the “last best hope” for a return to significantly more progressive marginal tax rates than obtain today. The simple explanation for this central claim looks to incentive effects, especially for “rich people,” as both economists and commentators are inclined to focus. High marginal tax rates under an income tax fall on and hence deter the socially productive activities of work and savings. High marginal rates under a wage tax fall on and hence deter the socially productive activity of work alone. But high marginal rates under a spending tax fall on and hence deter high-end spending, which is arguably a social “bad,” and do not necessarily deter the social goods of work and savings. This is a possible empirical result. In this Article, we present the analytic arguments for it and sketch out a research agenda that might verify it. The idea is that because one can escape or defer paying taxes under a progressive spending tax by saving, an activity with positive social externalities, the efficiency costs of high marginal rates under a spending tax can be mitigated. Unless people work only in order to be able to spend on themselves, and even then only if they fully internalize in their present labor supply decisions the ultimate tax they will pay - and we argue that each of these assumptions is unlikely to hold in the extreme - a spending tax can bear more steeply progressive rates with less cost in efficiency or social wealth than can an income or wage tax. A progressive spending tax also holds out the possibility of sorting the rich or high ability into two groups, elastic savers and inelastic spenders, which could yield welfare gains unavailable under income or wage taxes, which under current technologies can only sort the high ability into workers and non-workers. Progressive spending taxes also fall on consumption financed by windfall gains, as to which unexpected good fortune exante incentive effects are likely to be weak

The Polarized Spectrum of Apm 08279+5255

We report the discovery of significant linear polarization (p > 1%) in the hyperluminous z=3.87 BALQSO APM~08279+5255. The polarization spectrum is complex, with properties similar to those of other, lower redshift but more highly polarized BALQSOs. The resonance emission lines are unpolarized while the absorption troughs show polarization similar to or higher than the continuum. In particular, an apparent increase of polarization in the trough covering 1000-1030 angstroms (rest) supports the interpretation of this feature as a broad absorption component associated with OVI/Ly_beta local to the QSO, as opposed to an intervening damped Ly_alpha absorption system. The elevated polarization in some of the absorption features implies that we view the scattered (polarized) spectrum through a sightline with less absorbing material than the direct spectrum. Therefore, the complex structure of the polarization spectrum in this brilliant lensed BALQSO suggests that it will be an important laboratory for studying the structure of QSOs at high redshift.Comment: 8 pages, 1 figure. Accepted for publication in The Astrophysical Journal Letter