A Horizontal Equity Analysis
of the Minimum Tax Provisions: 1976-1986 Tax Acts
Kenneth Anderson
Abstract
This study extends previous research [Anderson, 1985] by (1)
replicating the horizontal equity analysis of minimum taxes under
the Tax Reform Act of 1976 (TRA76) and the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA) using samples from 1978 and
1983 Individual Tax Models and (2) examining the horizontal equity
impact of the recently enacted Tax Reform Act of 1986 (TRA86)
using both data sets. The results support the previous study's
conclusion that the TRA76 add-on minimum tax enhances horizontal
equity more than the TEFRA alternative minimum tax. The study
also concludes that the regular tax under TRA86 increases horizontal
equity far more than did the minimum tax under prior law and that
the alternative minimum tax under TRA86 makes a moderate additional
contribution to horizontal equity.
Evidence on Judgment Involving
the Determination of Substantial Authority: Tax Practitioners
versus Students
Otto H. Chang and Thomas M. McCarty
Abstract
This paper examines judgments of substantial authority made by
tax practitioners and tax accounting students. The experiment
was cast within a multivariate lens model and administered to
30 tax practitioners and 52 accounting students. Judgmental consensus,
self-insight, and stability were found to be moderately high for
tax practitioners and lower for the accounting students. Experience
and firm type effects also were analyzed.
The Role of Experimental Economics
in Tax Policy Research
Jon S. Davis and Charles W. Swenson
Abstract
This paper describes the application of experimental economics
to research examining the impact of tax policies on individual
and aggregate behavior. The paper discusses the benefits and limitations
that arise from using experimental economics as a supplement to
existing methods in tax policy research. In addition, with the
aim of providing guidance to tax researchers interested in adopting
the method, various methodological issues are examined, including
a description of how markets are created in the laboratory and
a survey of practices commonly applied in experimental economics
research. Last, a review of the limited tax research to date using
the method is presented, along with a discussion of some tax policy
issues that experimental economics can be used to address.
An Analysis of "Substantiality"
Under the Section 704(b) Final Regulations
Stephen T. Limberg and Sally Morrow Jones
Abstract
Special allocations of partnership income and loss are allowed
if the allocation has Substantial Economic Effect (SEE). In 1985,
SEE was interpreted in final Treasury Regulations that provided
an ambiguous definition of substantiality. The purpose of this
study is to develop a quantitative model of substantiality from
an analysis of the language in the Regulations. We identify two
models from the regulations and the professional literature. One
model compares the ratio of the present value cash flow detriment
of one partner under a special allocation to that partner's present
value cash flow under the general allocation. Another model compares
the ratio of the present value cash flow detriment of one partner
to the present value cash flow enhancement of another partner
under the same special allocation. Critical values of the ratios
must now be established by the IRS or courts, or inferred from
future rulings.
Corporate Average Effective
Tax Rates and Inferences about Relative Tax Preferences
Patrick J. Wilkie
Abstract
Previous research on corporate average effective tax rates (ETRs)
has consistently shown that ETRs vary across firms and over time
and has explained this finding solely in terms of the cross-sectional
and intertemporal differences in firms' "tax preferences."
This paper challenges the completeness and reliability of this
explanation by developing and empirically testing a model of the
ETR which shows that variations in ETRs are caused by differences
in both tax preferences and income whenever tax preferences and
income are not perfectly correlated. Further, it shows that cross-sectional
differences in intra-industry ETR variances are caused, not by
differences in the variation of tax preferences alone, but by
differences in the variation in income and in the level of tax
preferences and income as well.
Tax Base Differences Between
Worldwide and Water's Edge Methods of Unitary Taxation
Karen S. Hreha and Peter A. Silhan
Abstract
This paper compares the worldwide method and the water's edge
method of unitary taxation in terms of their differential impact
on the tax bases of a large sample of U.S.-based multinational
corporations. A survey of the Fortune 500 was used to obtain data
for computing these differences. Survey findings indicated that
while the worldwide method produces double taxation in many cases,
it also results in under taxation in many others. The results
help explain why worldwide unitary combination for state tax purposes
has been so controversial.
Understanding Changes in Tax
Laws with Variance Analysis
Wig De Moville
Abstract
Variance analysis may be useful classroom teaching technique
for explaining the impact of changes in tax laws on a taxpayer
who is affected simultaneously by several changes. This nontraditional
usage of variance analysis is illustrated through an example involving
depreciable property.