财政第十版课后答案19

Part 5 – The United States Revenue System

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Education. 19-1

Chapter 19 – The Corporation Tax

Brief Outline

1. Why Tax Corporations?

2. Structure

a. Employee Compensation Deducted

b. Interest, but Not Dividends, Deducted

c. Depreciation Deducted

d. Investment Tax Credit

e. Treatment of Dividends versus Retained Earnings

f. Effective Tax Rate on Corporate Capital

3. Incidence and Excess Burden

a. A Tax on Corporate Capital

b. A Tax on Economic Profits

4. Effects on Behavior

a. Total Physical Investment

b. Types of Asset

c. Corporate Finance

5. State Corporation Taxes

6. Taxation of Multinational Corporations

a. Global versus Territorial Taxation

7. Corporation Tax Reform

a. Full Integration

b. Dividend Relief

Suggested Answers to End of Chapter Questions

1. This statement implies that it makes more sense to have a tax treatment that prefers

dividends rather than retained earnings so that corporations don’t grow so large that good management is difficult.

2. The blogger ignores that corporations are owned by people, and only people can be taxes.

If Mr. Romney’s investments in corporations are taxed, thereby reducing his returns, then his income was taxed more than his simple income tax percentage indicates.

3.

a. The real value of depreciation allowances, ψ of equation (19.1), falls when

inflation rises. This is because as inflation rises, the real value of the series of

deductions declines.

b. When ψ falls, the user cost of capital increases because ψ enters negatively in the

numerator of equation (19.5).

c. A policy that permitted depreciation allowances to be inflation-indexed would

undo the effect of part a.

Chapter 19 – The Corporation Tax

Copyright ? 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill

Education.

19-2 4. Corporate tax revenues rise and then fall after an increase in the tax rate because it takes

time for firms to adjust the location of their capital. As the capital flows out, tax revenues decrease. More open economies would have a lower revenue maximizing rate because in such economies it is easier for capital to flow out to lower-tax countries if taxes become too high.

5.

a. If the $20 million is expensed, the firm gets a deduction of $20 million in the

current year. If the $20 million is depreciated, the deductions are spread over

time (in a way that depends on the specifics of the depreciation schedule). The

present value of the future flow of deductions is less than $20 million.

b. Because the package design will yield benefits that extend over a period of time,

it would seem sensible to view it as a capital expenditure. If so, depreciation is

appropriate, and the IRS was right.

6. A reduction in the corporate tax rate will lead to a migration of capital to the corporate

sector (because the after-tax rate of return increases) until the after-tax rate of return is equalized again. The reduction will also have the effect of moving capital from foreign countries back to the United States. Efficiency would improve because it would reduce the double taxation of capital income. Effects on equity are less clear: It depends largely on whether workers were made more productive by the additional capital.

7. This statement assumes that the corporate tax is equivalent to an income tax. Table 14.2

shows that a proportional tax on both capital and labor is equivalent to an income tax. Thus, the statement assumes that the corporate tax is a proportional tax on both capital and labor.

8. If the tax rate on dividends increases, the user cost of capital increases by 11.5 percent.

Therefore, investment in wind energy should decline by 17.25 percent.

9. One would calculate the depreciation of a cow based on the life expectancy of the cow

and the cow’s milk production. If the cow produces the same amount each year of her life, then the depreciation should be 1/L where L is life expectancy. If the milk production is less the longer the cow lives, then the depreciation in early years should be higher than in later years, a more complicated depreciation scheme. If the depreciation in the first year increases, the tax savings from the depreciation will increase and the user cost of capital will decrease.

10. The effective tax rate declines when allowed to book losses against previous profits for a

longer period. This lowers the user cost of capital. The accelerator model indicates that this will have no impact on investment. The neoclassical model indicates that this will increase investment. If the reduced tax increases cash flow, firms may also invest more.

11. The user cost of capital (ignoring depreciation allowances and investment tax credits) is

given by equation (19.4) in the textbook, C=(r+δ)/[(1-θ)(1-t)], where r=after tax rate of return in the capital market, δ=economic depreciation, θ=corporate tax rate, and

Part 5 – The United States Revenue System

Copyright ? 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill

Education. 19-3

t=individual tax rate. Substituting the numbers from the problem into the formula, gives the user cost: C=(.08+.01)/[(.65)*(.7)]=.1978. Since the project’s return, 30%, is higher than this user cost of 19.8%, the company does invest in the project.

12. This nature of the corporation implicit in this statement is that corporations are entities

separate from individuals, implying that taxing corporations has no effect on individuals. Most economists view this as incorrect because the corporation is owned by individuals. If a corporation is taxed, the individuals who own it are also being taxed.