JATA - Spring 1986

Volume 7, No. 2

The Capital Gains Timing Decision: A Quantitative Analysis
Gary A. McGill and John T. Sennetti

Corporate Tax Rates: Progressive, Proportional, or Regressive
Thomas M. Porcano

Refunding Non-Callable Bonds: A Tax-Oriented Decision Model
James E. Parker

Minimizing the Tax Cost of Faculty Research Grants
Edmund Outslay and Richard P. Weber

A Critical Analysis of the Marriage Tax Penalty
Casper E. Wiggins, Jr., D. Larry Crumbley, and Nicholas G. Apostolou

An Analysis of Two Proposed Cost Recovery Systems
Karen S. Hreha, Robert F. Sharp and Eugene Willis

The Capital Gains Timing Decision: A Quantitative Analysis

Gary A. McGill and John T. Sennetti

Abstract

A recent change in the long-term holding period for capital gains necessitates a reexamination of the capital gains timing decision. This paper presents a model for evaluating an individual taxpayer's decision to hold an asset for long-term capital gain treatment. Factors included in the model are the time period involved, the time value of money, the marginal tax rate, and the taxpayer's alternative minimum tax position. Additionally, the impact of different gain recognition years and different long-term holding periods on the model is analyzed. Surprisingly, under certain conditions, even with the higher effective tax rate, immediate short-term capital gain recognition may be preferable to long-term treatment.


Corporate Tax Rates: Progressive, Proportional, or Regressive

Thomas M. Porcano

Abstract

There are many differing views about the equity and impact of the corporate income tax structure. Suggestions to reform or eliminate the corporate income tax have been made by various accounting, economic, political, and public groups. An investigation into the underlying effective rate structure of the tax should be made to provide additional information about the tax's overall structure. This article presents an analysis of the average effective rates of more than 1,300 companies taken from Value Line Data Base-ll tapes. The results indicate that although corporate income tax essentially is defined to be proportional, effectively it is regressive and very low. Implications of these results on reform decisions also are discussed.


Refunding Non-Callable Bonds: A Tax-Oriented Decision Model

James E. Parker

Abstract

When interest rates fall after the issuance of non-callable debt, the market values of the bonds tend to rise. Purchasing these securities on the open market and issuing replacement debt at current interest rates allows debtor corporations to accelerate the recognition of losses for tax purposes. Such action also accelerates the bondholders' recognition of taxable long-term capital gains. The debtor corporation, however, has ordinary losses. This article develops a model for measuring the value to corporate shareholders of refunding non-callable bonds, after tax and other transaction costs are taken into consideration.


Minimizing the Tax Cost of Faculty Research Grants

Edmund Outslay and Richard P. Weber

Abstract

Accounting faculty research grants, frequently referred to as "summer money," generally are partially exempt from the income tax and completely exempt from social security taxes. However, based on survey responses from 50 accounting departments at universities with accounting Ph.D. programs, it appears that many award grantors and recipients are not receiving the full benefit of these exclusions. In this article, the proper treatment of accounting research grants and methods for maximizing the benefits of these exclusions are discussed.


A Critical Analysis of the Marriage Tax Penalty

Casper E. Wiggins, Jr., D. Larry Crumbley, and Nicholas G. Apostolou

Abstract

This study analyzes the incidence of marriage tax penalties and savings, and proposes policy changes which reduce marriage biases in the tax structure. The analysis indicates that both marriage tax penalties and savings still exist after the 1981 law changes. Focusing upon 1984, zero-bracket amount differences for married and single taxpayers are a significant source of marriage bias, particularly for lower income levels. Similar to single individuals, almost all heads of household realize similar savings when compared with married couples. Two tax policy changes are developed in this study which could further reduce biases. The revenue loss to the Treasury and the reduction in marriage penalties associated with each of the two alternatives are compared to the current marriage deduction approach. Finally, an analysis of the income demographics of the marriage savings and penalties under each alternative reveals that the vast majority of married taxpayers benefit from marriage provisions. Marriage penalties are incurred primarily by middle- and upper-income couples where both have taxable income.


An Analysis of Two Proposed Cost Recovery Systems

Karen S. Hreha, Robert F. Sharp and Eugene Willis

Abstract

Recently, the U.S. Treasury Department and the President have proposed bold changes in the cost recovery system for tax purposes. Both proposals agree that depreciation should be adjusted for changing prices. Adjustments for changing prices are already being used by economists and the financial community. The purpose of this paper is two-fold: (1) to analyze the proposed cost recovery systems in light of their stated objectives of simplicity and fairness, and (2) to explore whether a single system could be used for tax, financial, and economic purposes.