Do Taxes Motivate Corporate Managers?
Tax scholarship is interdisciplinary. To evaluate tax policy it helps to know at least a little about economics, a little about philosophy, something about budget processes, and a lot about the dizzying creativity of the marketplace in exploiting loopholes and facilitating tax-advantaged transactions. In her recent article Accounting for Behavioral Considerations in Business Tax Reform: The Case of Expensing, Lily Batchelder shows us that we must add financial accounting and firm (and corporate managers’) behavioral considerations to the mix.
The article evaluates which of three policies, adopted on a revenue neutral basis to replace our current regime of accelerated depreciation, would cause the largest increase in new investment by the corporate sector. The three policies are: expensing of new investments combined with higher statutory corporate rates; lower statutory rates combined with more gradual and economically accurate economic depreciation; and an investment tax credit combined with economic depreciation.