TY - JOUR
T1 - The indexation of interest, depreciation, and capital gains and tax reform in the United States
AU - Fullerton, Don
N1 - Funding Information:
*This paper was written while I was a Visiting Scholar at the American Enterprise Institute and revised while I was Deputy Assistant Secretary (Tax Analysis), U.S. Department of the Treasury. I am very grateful for the expert research assistance of James Mackie and Barbara Steinberg, for financial support of the American Enterprise Institute, and for helpful discussions with Michael Allison, David Bradford, Charles Hulten, Lawrence Lindsey, John Makin, Joel Slemrod, Charles Stuart and two anonymous referees. Special thanks go to Yolanda Kodrzycki Henderson, with whom I built the model used in this paper. Any opinions expressed are those of the author and not those of the U.S. Treasury Department.
PY - 1987/2
Y1 - 1987/2
N2 - The Treasury's 1984 tax plan suggests features of a comprehensive income tax, including the indexation of interest, depreciation, and capital gains. The 1985 President's proposal retains some of these indexing provisions, but the Tax Reform Act of 1986 does not. This paper looks at the incentives under these tax regimes to make marginal investments in the corporate sector, noncorporate sector, and owner-occupied housing. It finds that inflation in the old system caused effective tax rates to rise for some assets and fall for others. Under the Treasury or President's proposals, the interference of inflation is virtually eliminated. Also, the effects of inflation are substantially reduced by the 1986 Act, because mismeasured depreciation and interest deductions are taken at much lower rates.
AB - The Treasury's 1984 tax plan suggests features of a comprehensive income tax, including the indexation of interest, depreciation, and capital gains. The 1985 President's proposal retains some of these indexing provisions, but the Tax Reform Act of 1986 does not. This paper looks at the incentives under these tax regimes to make marginal investments in the corporate sector, noncorporate sector, and owner-occupied housing. It finds that inflation in the old system caused effective tax rates to rise for some assets and fall for others. Under the Treasury or President's proposals, the interference of inflation is virtually eliminated. Also, the effects of inflation are substantially reduced by the 1986 Act, because mismeasured depreciation and interest deductions are taken at much lower rates.
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U2 - 10.1016/0047-2727(87)90027-2
DO - 10.1016/0047-2727(87)90027-2
M3 - Article
AN - SCOPUS:38249038120
SN - 0047-2727
VL - 32
SP - 25
EP - 51
JO - Journal of Public Economics
JF - Journal of Public Economics
IS - 1
ER -