U.S. Effective Marginal Tax Rates on New Investment Under Prior Law and the Tax Cuts and Jobs Act

41 Pages Posted: 16 Nov 2018

See all articles by Tracy Foertsch

Tracy Foertsch

U.S. Department of the Treasury

Date Written: October 24, 2018

Abstract

U.S. Effective marginal tax rates (EMTRs) for 2018 through 2027 are calculated for the Tax Cuts and Jobs Act (TCJA). These EMTRs take account of the extension and subsequent phase out of bonus depreciation with a methodology used by Cohen, Hansen, and Hassett (2002) to estimate the user cost of capital under a temporary bonus depreciation. The EMTRs also take account of several changes in the law over the 10-year period. Those changes include of the expiration (sunset) of most of the TCJA’s individual provisions at the end of calendar year 2025 and the replacement of expensing for research and experimentation (R&E) intangibles with amortization in 2022. They also include the switch in the limitation on interest deductions from an earnings before interest, tax, depreciation, and amortization (EBITDA) definition of adjusted taxable income to an earnings before interest and tax (EBIT) definition in 2022.

Keywords: effective marginal tax rates

JEL Classification: H20, H24, H25

Suggested Citation

Foertsch, Tracy, U.S. Effective Marginal Tax Rates on New Investment Under Prior Law and the Tax Cuts and Jobs Act (October 24, 2018). Available at SSRN: https://ssrn.com/abstract=3272392 or http://dx.doi.org/10.2139/ssrn.3272392

Tracy Foertsch (Contact Author)

U.S. Department of the Treasury ( email )

1500 Pennsylvania Avenue
Washington, DC 20220
United States

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