The Marginal Excess Burden of Different Capital Tax Instruments

Marginal excess burden, defined as the change in deadweight loss for an additional dollar of tax revenue, has been measured for labor taxes, output taxes, and capital taxes generally. This paper points out that there is no we1 1-defined way to raise capital taxes in general, because the taxation of income from capital depends on many different policy instruments including the statutory corporate income tax rate, the investment tax credit rate, depreciation lifetimes, declining balance rates for depreciation allowances, and personal tax rates on noncorporate income, interest receipts, dividends, and capital gains. Marginal excess burden is measured for each of these different capital tax instruments, using a general equilibrium model that encompasses distortions in the allocation of real resources over time, among industries, between the corporate and noncorporate sectors, and among diverse types of equipment, structures, inventories, and land. Although numerical results are sensitive to specifications for key substitution elasticity parameters, important qualitative results are not. We find that an increase in the corporate rate has the highest marginal excess burden, because it distorts intersectoral and interasset decisions as well as intertemporal decisions. At the other extreme, an investment tax credit reduction has negative marginal excess burden because it raises revenue while reducing interasset distortions more than it increases intertemporal distortions. In general, we find that marginal excess burdens of different capital tax instruments vary significantly. They can be more or less than the marginal excess burden of the payroll tax or the progressive personal income tax.

A Disaggregate Equilibrium Model of the Tax Distortions Among Assets, Sectors, and Industries

This paper encompasses multiple sources of inefficiency introduced by the U.S. tax system into a single general equilibrium model. Using disaggregate calculations of user cost, we measure interasset distortions from the differential taxation of many types of assets. Simultaneously, we model the intersectoral distortions from the differential treatment of the corporate sector, noncorporate sector, and owner-occupied housing. Industries in the model have different uses of assets and degrees of incorporation. Results indicate that distortions between sectors are much smaller than those of the Harberger model. Distortions among industries arealso much smaller than those in models using average effective tax rates. Distortions among assets are larger, but the total of all these welfare costs is still below one percent of income.

Long-Run Effects of the Accelerated Cost Recovery System

Much of the debate surrounding the enactment of President Reagan's tax plan was concerned with the short run effects of macroeconomic stimulation. Now that the Economic Recovery Tax Act of 1981 has become law, it is appropriate to look again at the long run effect of these tax cuts. This paper measures, for 37 different assets and for 18 different industries, the reduction in effective corporate tax rates that result from the acceleration of depreciation allowances and the expansion of the investment tax credit. It also uses a detailed dynamic general equilibrium model of the U.S. economy to simulate the effects of the new Accelerated Cost Recovery System (ACRS) on revenues, investment, long run growth, and capital allocation among industries. We find significant welfare gains from ACRS, but we find larger welfare gains from alternative plans that were not adopted.

A Comparison of Methodologies in Empirical General Equilibrium Models of Taxation

Computational general equilibrium models have proven useful in the area of long run analysis of alternative tax policies. A sizable number of studies have been completed which examine policies such as a value-added tax, corporate and personal income tax integration, a consumption or expenditure tax, housing subsidies, and inflation indexation.. This paper reviews the methodologies used in these models. We focus on eight specific models and review in turn: levels of disaggregation, specification of the foreign sector, financial modeling, the measurement of effective tax rates, heterogeneity and imperfect mobility, factor supply, treatment of the government budget, and technical issues associated with implementation. The paper includes some new experiments in connection with simulations of integration of the personal and corporate income tax systems in the United States. We compare the resulting welfare gains in models with different levels of disaggregation, and we discuss alternative justifications for specific disaggregations. We also examine the sensitivity of results to alternative specifications of households' endowments of labor and leisure. Our survey underscores the importance of the assumed elasticities of labor supply with respect to the net of tax wage, and of saving with respect to the net of tax rate of return. Unfortunately, these are also parameters for which there is not a consensus in the economics profession. The survey finds that there are several aspects of modeling that are especially ripe for further progress: the roles of government and business financial decisions, the dynamics of a life-cycle approach, and the measurement of incentive tax and transfer rates.

The Impact of Fundamental Tax Reform on the Allocation of Resources

Recent proposals for fundamental tax reform differ in their relative emphasis on interasset, intersectoral, interindustry, and intertemporal distortions. The model in this paper addresses these multiple issues in the design of taxes on capital incomes. It is capable of measuring the net effects of changes in statutory rates, credits, depreciation allowances, and other features such as the indexation of interest and capital gains. It can compare costs of capital for individual assets, sectors, arid industries, and it weighs these together to evaluate the impact on total investment incentives. In a fully general equilibrium system, it can simulate alternative resource allocations and associated changes in welfare. For the overall evaluation of alternative tax reform proposals, the simultaneous consideration of these multiple effects is crucial. The model is used to compare current law, the Treasury tax reform plan of November 1984, and the Presidents proposal of May 1985. Under the "new view" that dividend taxes have a small effect on investment incentives, both reforms would reduce interasset distortions and the Presidents plan would reduce intersectoral distortions, but the Treasury plan would exacerbate intertemporal distortions. Still, for most parameters, both reforms generate net welfare gains even with slight declines in the capital stock. Under the "old view" that dividend taxes have a significant effect on investment incentives, both plans reduce corporate taxation through their partial deductions for dividends paid. They thus reduce intersectoral distortions as well as differences among assets. Under this view, the Treasury plan no longer increases intertemporal distortions. Even for the least favorable set of parameters in this case, these reforms raise both the capital stock and the real value of output above their baseline values. Finally, the paper shows alternative allocations of capital among assets, sectors, and industries.

Is leverage a tax dodge--or not?

In passing the Tax Reform Act of 1986, policymakers wanted to ensure that corporations would pay their fair share of tax. Congress broadened the corporate tax base, rescinded the investment tax credit, and instituted a new minimum tax. The issue of adequate tax payments has not gone away, however, because corporations have been taking larger interest deductions as a result of having substituted debt for equity on their balance sheets. ; This study begins by measuring the aggregate tax consequences of corporate leverage decisions. It also examines the tax implications of recent transactions in which corporations effectively increased their leverage, not by changing their financing of new investment projects, but by reducing their outstanding net worth. The author argues that policymakers concerned with stemming further revenue losses should look to responses other than outlawing certain controversial forms of restructuring or restricting interest deductions that appear to be excessive. At most, they should consider altering tax laws to provide more neutral treatment of income from debt and equity capital.Financial leverage ; Taxation ; Corporations - Finance

Capital costs, industrial mix, and the composition of business investment

The composition of business investment in the United States changed dramatically during the 1980s. Workplaces were transformed as a result of investments in information processing equipment such as computers, fax machines, copiers, and sophisticated telephones. Businesses built new office towers and shopping malls, but few industrial facilities. ; This article considers the extent to which changes in the cost of capital can account for these shifts. A number of developments occurred in the 1980s that affected the cost of capital more for some industries and assets than others. It is well known, for example, that computer prices fell sharply. Also, policymakers enacted significant revisions to the tax laws in efforts to alter the allocation of investment. The article concludes that the changes are due in large part to movements in real capital goods prices across industries and across assets.Capital ; Corporations - Finance

In vitro corrosion and biocompatibility behavior of CoCrMo alloy manufactured by laser powder bed fusion parallel and perpendicular to the build direction

Biomedical cobalt-chromium-molybdenum alloys (CoCrMo) are frequently used for orthopedic implant and dental materials exposed to mechanical stressors, such as wear and cyclic load. Due to the high demand for customizable implant shapes, these alloys are increasingly manufactured by additive manufacturing methods such as laser powder bed fusion (LPBF). LPBF results in different microstructures and surface roughness as a function of the building direction. This study investigated the corrosion resistance, bioactivity, biocompatibility, and microstructure of LPBF CoCrMo (low carbon content, heat-treated) in the XY (perpendicular) and XZ (parallel) plane of the building direction for as-printed (as-received) and abraded surfaces. A distinct microstructure and different surface roughness were found for the XY and XZ planes. The as-received XY surface showed the lowest corrosion resistance but was still passive in phosphate-buffered saline (PBS, pH 7.4). As-received surfaces were less corrosion-resistant than abraded surfaces. All specimens exhibited lower corrosion resistance in PBS containing citric acid at pH 7.4 than in PBS and citric acid alone. As-received surfaces showed better hydroxyapatite precipitation and cell viability; however, all surfaces had satisfactory biocompatibility and bioactivity. This study showed that the building direction had a minor effect on the corrosion of LPBF CoCrMo