"Business Tax Incentives and Investments"

For more than twenty years, U.S. tax policy offered businesses a credit based on a percentage of investment in equipment. The stated purpose of the investment tax credit was to encourage investment as a means to further modernization, job growth, and competitiveness. The results of this study, however, indicate that investments were not significantly higher when the credit was in force than during periods when it was not. While the credit may have increased the rate of return on equipment investments, additional tests fail to find an increase in investment spending due to this particular incentive. The results also suggest that only a small fraction of additional corporate income generated by the credit was likely to have been spent on investment. Given the need to encourage investment spending, especially during recessions, alternatives to investment tax credits should be pursued. A logical alternative is a broader program of public investment in education, infrastructure, and research.

"Welfare Graduates: College and Financial Independence"

Are the effects of college-level education on income and financial independence positive enough to make it worthwhile for states to extend support to qualified welfare recipients to enable them to pursue such education?

Closing the R&D gap: Evaluating the sources of R&D spending

Both spending and tax policies have been implemented in the United States with the goal of stimulating private sector research and development (R&D). Thomas Karier questions whether current R&D policy, especially the research and experimentation tax credit, can contribute to closing the gap between nondefense expenditures on R&D in the United States and such expenditures in other countries, such as Japan and Germany. He also explores possible changes to our current R&D policy to make it more effective

Investment tax credit reconsidered: Business tax incentives and investments

In this brief, Thomas Karier explores the efficacy of the investment tax credit (ITC) in stimulating private investment spending. He notes that there are three possible channels through which an ITC can act on investment: price, income, and multiplier effects. He finds that ITCs do not appear to have had a significant effect on equipment investment; that the effects of a decline in corporate tax rates (the income effect) were distributed among increased dividends and fewer equity and debt issuances and had little influence on investment; and that capacity utilization and real GDP growth were the only business cycle variables that had a significant effect on equipment investment growth. Based on these findings, Karier concludes that alternatives to tax investment credit programs must be found and pursued. He suggests undertaking a modest program of direct public investment financed by rearranging spending priorities within the budget; a more expansive program could be financed through additional borrowing or through an increase in the corporate income tax

"What Happened to the Corporate Profit Tax?"

The radical reorientation of the federal budget during the 1980s provided generously for military expansion at the expense of pressing social needs. In the wake of such dramatic upheavals, the federal government will eventually be compelled to seek out new sources of revenue in order to compensate for the decade of neglect. But where will the resources be found to close the deficit, fully fund education, support the sick and impoverished, rebuild the infrastructure, and cleanup the environment? The Economic Policy Institute has placed a price tag of $65 billion on these necessities. As policy makers survey the revenue alternatives - military cuts, a more progressive income tax, a corporate take-over tax - one area they should not overlook is the corporate profit tax. Most people were aware that the corporate profit tax provided relatively little revenue in support of federal expenditures during the 1980s. But perhaps less well-known is the fact that corporations have enjoyed a steady decrease in their tax share for the past three decades. In 1960 corporate profit taxes financed approximately 22% of all expenditures by the federal government compared to only 7% in 1986. By exploring the reasons for this decline it becomes possible to appreciate the magnitude of the potential revenue that could be generated from corporate tax reform.

"Accounting for the Decline in Private Sector Unionization: Representation Elections, Structural Change and Restructuring"

During the 1980s several qualitative changes occurred in the union decline. First, net gains from certification (less decertification) elections fell to insignificant levels, tending to accelerate the union decline. On the other hand, union losses from the relative growth of nonunion services (structural change) also declined sharply as unionization rates became more homogeneous across sectors. As a consequence, virtually all changes in the unionization rate during the 1980s were caused by disproportional gains in nonunion employment within sectors (restructuring).

"Investment Tax Credit Reconsidered, Business Tax Incentives and Investments "

Karier explores the efficacy of the investment tax credit (ITC) in stimulating private investment spending. He notes that there are three possible channels through which an ITC can act on investment: price, income, and multiplier effects. He finds that ITCs do not appear to have had a significant effect on equipment investment; that the effects of a decline in corporate tax rates (the income effect) were distributed among increased dividends and fewer equity and debt issuances and had little influence on investment; and that capacity utilization and real GDP growth were the only business cycle variables that had a significant effect on equipment investment growth. Based on these findings, Karier concludes that alternatives to tax investment credit programs must be found and pursued. He suggests undertaking a modest program of direct public investment financed by rearranging spending priorities within the budget; a more expansive program could be financed through additional borrowing or through an increase in the corporate income tax.

"Closing the R&D Gap, Evaluating the Sources of R&D Spending"

Both spending and tax policies have been implemented in the United States with the goal of stimulating private sector research and development (R&D). Karier questions whether current R&D policy, especially the research and experimentation tax credit, can contribute to closing the gap between nondefense expenditures on R&D in the United States and such expenditures in other countries, such as Japan and Germany. He also explores possible changes to our current R&D policy to make it more effective.

Business Tax Incentives and Investment

Economists of all stripes view a rise in investment spending as the cure for nearly any macroeconomic disorder. Given that only public investment is amenable to direct control, how is the "optimal" level of investment in a given economy ensured? One route is through public policies aimed at producing incentives for private sector investment. In this paper, Karier evaluates the efficacy of one such program, the investment tax credit (ITC), in stimulating private investment expenditures. (The credit was in place sporadically and in various forms between the years 1966 and 1987 and applied only to investment in machinery, equipment, and furniture.)