The Interaction of Tax and Financial Accounting on Tax Reform
Statement Submitted for the Record

View the full statement here. 

While reducing statutory rates would provide a benefit to existing investments and improve the valuation of the company from the point of view of the shareholders, expanding expensing and accelerated depreciation provisions would generate returns over the lifetime of the company by improving cash flows and thereby enhancing firm value. Both types of reforms are critical to firms that are deciding what new investments to undertake and which activities will generate the highest return. In economic terms, the user cost of capital, or the implicit annual cost of investing in physical capital, is determined by not only the headline corporate tax rate, but also other factors such as the rate of depreciation as well as the interest rate. Therefore, any changes to either the tax rates or the provisions affecting the return from capital, would lead to a change in the user cost, which would affect physical capital investments by firms. 

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About the Author

 

Aparna
Mathur
  • Aparna Mathur is an economist who writes about taxes and wages. She has been a consultant to the World Bank and has taught economics at the University of Maryland. Her work ranges from research on carbon taxes and the impact of state health insurance mandates on small firms to labor market outcomes. Her research on corporate taxation includes the widely discussed coauthored 2006 "Wages and Taxes" paper, which explored the link between corporate taxes and manufacturing wages.
  • Phone: 202-828-6026
    Email: amathur@aei.org
  • Assistant Info

    Name: Hao Fu
    Phone: 202-862-5214
    Email: hao.fu@aei.org

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