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
Date Written: October 24, 2018
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: Suggested Citation