The Indexation of Interest, Depreciation, and Capital Gains: A Model ofInvestment Incentives / Don Fullerton.

Format:

Book

Author/Creator:

Fullerton, Don.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1655.

NBER working paper series no. w1655

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Indexation of Interest, Depreciation, and Capital Gains

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1985.

Summary:

Despite much recent interest in a consumption tax, the Treasury Department's November 1984 tax plan proposes to adopt carefully coordinated features of a more comprehensive income tax, including the indexation of interest, depreciation, and capital gains.The May 1985 White House proposal would retain some of these indexing provisions.This paper looks at the incentives under alternative tax regimes to make marginal investments in the corporate sector, noncorporate sector, and in owner-occupied housing. It finds that the current system is characterized by effective tax rates that increase with inflation for some assets and decrease with inflation for other assets. Overall rates fall with inflation, and the corporate tax is completely offset by credits, allowances, and deductions. Under the Treasury or White House plans, the corporate tax re-emerges, effective tax rates are considerably more uniform, and the interference of inflation is virtually eliminated.

Notes:

Print version record

June 1985.