ESTIMATING THE TAX BENEFITS OF DEBT

The standard approach to valuing interest tax shields assumes that full tax benefits are realized on every dollar of interest deduction in every scenario. The approach presented in this paper takes account of the possibility that interest tax shields cannot be used in some scenarios, in part because of variations in the firm's profitability. Because of the dynamic nature of the tax code (e.g., tax-loss carrybacks and carryforwards), it is necessary to consider past and future taxable income when estimating today's effective marginal tax rate. The paper uses a series of numerical examples to show that (1) the incremental value of an extra dollar of interest deduction is equal to the marginal tax rate appropriate for that dollar ; and (2) a firm's effective marginal tax rate (and therefore the marginal benefit of incremental interest deductions) can actually decline as the firm takes on additional debt.
Based on marginal benefit functions for thousands of firms from 1980–1999, the author concludes that the tax benefits of debt averaged approximately 10% of firm value during the 1980s, while declining to around 8% in the 1990s. By taking maximum advantage of the interest tax shield, the average firm could have increased its value by approximately 15% over the 1980s and 1990s, suggesting that the consequences of being underlevered are significant. Surprisingly, many of the companies that appear best able to service debt (i.e., those with the lowest apparent costs of debt) use the least amount of debt, on average. Treasurers and CFOs should critically reevaluate their companies' debt policies and consider the benefits of additional leverage, even if taking on more debt causes their credit ratings to slip a notch.     

THE MARKET REACTION TO THE 1986 TAX OVERHAUL: A STUDY OF THE CAPITAL GAIN TAX CHANGE

The Tax Reform Act of 1986 (TRA) eliminated the favorable tax treatment on long-term capital gains in the US. Using a standard event study… CONTENTS AND ABSTRACTS 111 methodology, this paper examines daily stock return reactions to the tax overhaul. The results show that high dividend yield stocks earned a significant positive abnormal return and low yield stocks a significant negative return during the legislation period. This finding is consistent with the notion that the TRA made the market valuation of stocks shift in favor of high yield stocks.     

加快推进资源税整体改革

2010年我国资源税改革取得重要进展,后续改革任务仍很重,建议采用扩大地域范围和扩大产品覆盖范围两条线分别梯次推进的方法,加快推进资源税整体改革。     

研究会动态

郝昭成会长会见荷兰国际财政文献局总裁威廉·方特2007年4月12日,中国国际税收研究会会长郝昭成、副会长兼秘书长权兆运在北京会见了来     

INCORPORATION OF TAX CONSIDERATIONS INTO THE COMPUTATION OF DURATION

In this paper, the immunization process is extended to protect after-tax income, and the duration indices for after-tax immunization are derived. Selection of the appropriate index depends on individual investor differences in tax regulations. Attention is focused on the mutually exclusive decisions to amortize or not to amortize premia or discounts.     

THE EFFECT OF TAX PREFERENCES ON HEALTH SPENDING

In this paper, we estimate the effect of the tax preference for health insurance on health care spending using data from the Medical Expenditure Panel Surveys from 1996-2005. We use the fact that Social Security taxes are only levied on earnings below a statutory threshold to identify the impact of the tax preference. Because employer-sponsored health insurance premiums are excluded from Social Security payroll taxes, workers who earn just below the Social Security tax threshold receive a larger tax preference for health insurance than workers who earn just above it. We find a significant effect of the tax preference, consistent with previous research.     

THE ANALYTICS OF TAX EFFECTS IN DISCOUNT BOND VALUATION

This paper discusses the analytics of tax effects in discount bond valuation. The author illustrates that bond value is a simple linear function of the tax rate on interest income, whereas bond value is concave to the capital gains tax rate. The author also analyzes how changes in tax rates interact with yield changes to affect bond valuation and how tax rates interact with maturity to determine the depth of bond discount.     

THE COST OF EQUITY UNDER THE AUSTRALIAN DIVIDEND IMPUTATION TAX SYSTEM

This paper derives a Capital Asset Pricing Model (“CAPM”) in the context of the Australian dividend imputation tax system. The effect of dividend imputation on the estimated risk premium is discussed. The structure and implications of the derived CAPM are also examined.     

THE MARKET PRICING OF NET OPERATING LOSS CARRYFORWARDS: IMPLICATIONS OF THE TAX MOTIVATIONS OF MERGERS

An empirical analysis of the market pricing of net operating loss carryforwards (NOLs) and the ability for tax considerations to contribute to mergers and the substantial merger premiums often observed by target firms is presented. The restrictive anti-merger tax-transfer provisions of Section 382 of the Tax Reform Act of 1976 (TRA) serve as the legislative vehicle through which performance differentials of NOL and non-NOL firms are measured. The results of the study are consistent with the hypothesis that NOLs are at least partially priced in the absence of a merger, a fact that suggests that tax-motivated mergers may be more myth than reality. Since the anti-merger tax-transfer penalties contained within the Tax Reform Act of 1986 merely represent incremental increases over those of the TRA, the results of the study remain relevant in the current legislative environment.     

THE COST OF CAPITAL OF A COMPANY UNDER AN IMPUTATION TAX SYSTEM

One of the issues arising out of the introduction of an imputation tax for companies in Australia is the effect it is likely to have on the definition and measurement of a company's cost of capital. Insofar as there is a difference between the value of a dollar of franked relative to unfranked dividends, conventional definitions for the cost of capital are inappropriate and new definitions are required. This has implications for the measurement of a company's cost of capital and for the definition of net cash flows that are used in conjunction with the cost of capital. This paper sets out these definitions and an approach for measuring the cost of capital. The new definition of the cost of capital replaces the effective company tax rate T with T(l - γ) where γ is the value of personal tax credits. Further, the definition of the risk premium in the capital asset pricing model requires an adjustment for the capitalized value of personal tax credits to maintain consistency between the cost of capital and cash flows which are defined on an after-company tax but before-personal tax basis.     

借鉴国际经验 减轻小微企业税负

无论是发达国家还是发展中国家，微型和小型企业（以下称微小企业）在社会经济生活中都占据了极其重要的地位。政府之所以对微小企业实行特殊的税收处理，是因为资本市场的不完善导致微小企业很难获得债务或权益的融资，因而更多需要自身的积累作为融资来源，市场失灵使得各国政府都采取了一些税收手段来缓和这种融资约束。