Category Archives: Taxation

The impact of tax rate changes on intercorporate investment

Robert F. Gary, Jared A. Moore, Craig A. Sisneros, and William D. Terando
Advances in Accounting, Volume 34, Pp. 55–63

We examine how tax rates impact investment by corporations in the stock market. We regress changes in intercorporate investment on changes in the various individual and corporate top statutory marginal tax rates (MTRs). We find a significant negative association between changes in individual capital gains MTRs and changes in intercorporate investment, while no such association is evident for changes in either individual ordinary or dividend MTRs. These results support the notion that corporations respond to the after-tax rate of return and/or market efficiency consequences brought about by a change in individual capital gains MTRs. We find a significant positive relation between changes in intercorporate investment and changes in corporate MTRs on ordinary income. These results are consistent with corporations scaling back expansion plans and instead investing free cash flows in equity securities as MTRs increase.

Cognitive Responses to Partitioned Pricing of Consumption Taxes: Consequences for State and Local Tax Revenues

Cynthia Blanthorne and Michael L. Roberts
The Journal of the American Taxation Association, Vol. 37, Issue 1, pp. 183-204

How do taxpayers respond cognitively to add-on sales taxes versus all-inclusive excise taxes? If structural variations produce cognitive differences, then do the differences affect buying behavior? These are important questions because consumer spending drives the U.S. economy and directly determines the amount of tax revenues collected from consumption taxes.

If the negative opinion that people have about taxes (Tax Foundation 2009) increases the saliency of the tax, then an add-on sales tax might decrease consumer spending more than an all-inclusive excise tax pricing structure. Instead, results suggest that demand is higher when the add-on component is a sales tax as compared to an excise tax that is embedded into the total price. The effects on demand are even more pronounced and people recall lower prices when the add-on sales tax is presented as a percentage of the base price—as is generally the case in the U.S.—rather than as an additional currency component.

Tax Treatment of Compensation Received as a Nonprofessional Representative

Conner, Elizabeth C. and Schaefer, Michael V.
Tax Adviser
Vol. 38, Issue 11, p. 653-654

The article focuses on tax treatment of compensation received as a nonprofessional representative. According the U.S. Internal Revenue Service, self-employment tax only applies for a nonprofessional executor or administrator if a trade or business is included in the assets of the estate, the executor actively participates in the business and the fees are related to operation of the business.