Investment Performance Comparison Between Roth And Traditional Individual Retirement Accounts

With the recent introduction of the Roth Individual Retirement Account (IRA) along with a significantly improved Traditional IRA, there has been considerable interest in comparing the performance of these investment vehicles.  Some confusion regarding these comparisons has evolved.  In this paper we show that this confusion may be attributed to scale and tax differences between the two investment vehicles.  We adjust for these differences by focusing on the after-tax rate-of-return on investment for each IRA vehicle.  We find that performance depends crucially on the relationship between an individual’s tax rates at the time of investment and at the time of withdrawal.

Download Full-text

Optimal Tax Deferral Choices In The Presence Of Changing Tax Regimes

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v23i1.1404 ◽

2011 ◽

Vol 23 (1) ◽

Author(s):

Terrance Jalbert ◽

Eric Rask ◽

Mercedes Jalbert

Keyword(s):

Return On Investment ◽

Rate Of Return ◽

Tax Rates ◽

Font Size ◽

Comprehensive Understanding ◽

Rate Estimate ◽

Tax Rate ◽

Optimal Tax ◽

Tax Regimes

In this paper the attractiveness of tax-deferred and non-deferred investments in periods of changing tax regimes are examined.  Specifically the desirability of deferring taxes given one’s current tax rate, estimate of future tax rates, number of years until retirement, and the expected rate of return on investment is explored.  Under some combinations of tax rates and investment horizons, tax deferral is found to be undesirable while in others it is found to be desirable.  Using the formulas and tables developed here, an individual can identify the rate of return on investment at which he is indifferent between deferring and not deferring, rates at which tax deferral is preferred and rates at which tax deferral is inferior.  In addition, the sensitivity of the decision to the timing of future tax rate changes is explored.  This research provides investors a more comprehensive understanding of the factors that determine optimal tax deferral choices and will permit investors to make better tax deferral decisions.

Download Full-text

The Impact of the Source of Changes in Marginal Tax Rates on Participation in Individual Retirement Accounts

Journal of the American Taxation Association ◽

10.2308/jata.2002.24.1.46 ◽

2002 ◽

Vol 24 (1) ◽

pp. 46-59 ◽

Cited By ~ 4

Author(s):

David H. Eaton

Keyword(s):

Fixed Effects ◽

Tax Reform ◽

Tax Rates ◽

Tax Rate ◽

Taxable Income ◽

Individual Retirement Accounts ◽

Retirement Accounts ◽

Marginal Tax Rates ◽

The Impact ◽

Participation Decisions

This paper uses a series of two-year panels of tax return data to estimate the effects of two sources of tax rate changes on the participation in Individual Retirement Accounts (IRAs). This paper uses a panel logit approach to control for individual specific fixed effects, which may also influence IRA participation behavior. This paper examines participation during the years of open eligibility for IRAs, as well as examining the impact of the 1986 tax reform on participation. A key finding of this paper is that taxpayers' IRA participation decisions are more sensitive to changes in tax rates due to changes in taxable income than to direct changes in the tax tables.

Download Full-text

Research on the Relationship among Cost Control, Technical Investment and Franchising Period in BOT Projects

Advanced Materials Research ◽

10.4028/www.scientific.net/amr.403-408.5166 ◽

2011 ◽

Vol 403-408 ◽

pp. 5166-5171

Author(s):

Zhen Hu ◽

Jing Lei Sun

Keyword(s):

Return On Investment ◽

Cost Control ◽

Rate Of Return ◽

Maintenance Cost ◽

Constraint Condition ◽

Value For Money ◽

Public And Private ◽

The Public ◽

Effective Cost ◽

The Relationship

Under the double win constraint condition between the public and private party, this paper takes VFM (Value for Money) as the evaluating indicator of the government’s earnings, uses the rate of return on investment as the evaluating indicator of the project company’s earnings in order to analyze the relationship among cost control, technical investment and franchising period. We found that the effective cost control can shorten the franchising period and hardly depend on the technical investment. If the contribution of the technical investment to the reduction of the maintenance cost is comparatively high, increasing technical investment can effectively shorten the franchising period, otherwise it has to postpone the franchising period so as to meet the earnings target of both the public and private parties when increasing the technical investment

Download Full-text

Alíquota efetiva de tributos sobre o lucro no Brasil das companhias da B3: um estudo da relação dos indicadores de retorno financeiro

ForScience ◽

10.29069/forscience.2020v8n2.e776 ◽

2020 ◽

Vol 8 (2) ◽

pp. e00776

Author(s):

Tiago De Jesus Mendes ◽

Ilva Ruas Abreu ◽

Felipe Fróes Couto

Keyword(s):

Effective Rate ◽

Third Party ◽

Tax Rates ◽

Effective Tax Rate ◽

Financial Return ◽

Return On Equity ◽

Tax Rate ◽

Tax Management ◽

Relationship Of ◽

The Relationship

A relação dos indicadores de retorno financeiro das empresas do Brasil, Bolsa, Balcão-B3, com o gerenciamento da alíquota efetiva de tributos sobre o lucro, influenciou a pesquisa. Para isso, identificou-se a relação dos indicadores financeiros de retorno sobre o patrimônio-ROE e o retorno sobre o capital investido- ROIC com a alíquota efetiva dos tributos sobre o lucro. A pesquisa possui característica explicativa e utilizou-se de regressão com dados em painel para analisar os resultados. Como resultado, o ROIC demonstrou que possivelmente as empresas mais rentáveis possuem maiores alíquotas efetivas dos tributos. O ROE apresentou que, possivelmente, o investimento da organização na remuneração por desempenho dos diretores, os leva a investirem mais recursos no gerenciamento tributário, gerando um aumento do retorno para os acionistas. A alavancagem financeira indica que no Brasil uma estrutura alavancada, pode contribuir para uma maior carga fiscal, levando as empresas a aumentarem as participações de capitais de terceiros, neutralizando o efeito da alavancagem sobre a tributação. O tamanho da empresa pode indicar que quanto maior o tamanho da empresa menor o imposto sobre o lucro da empresa. Como resultado para a taxa de imposto efetiva identificou-se que as empresas utilizam os benefícios da redução da alíquota efetiva dos tributos sobre o lucro, pois o teste não paramétrico de sinais demonstrou que em 80% das observações, as alíquotas efetivas dos tributos das empresas analisadas são menores que a alíquota nominal de 34%, logo as empresas utilizam os efeitos do gerenciamento tributário. Palavras-chave: Indicadores de retorno financeiro das empresas. Gerenciamento tributário. Alíquota efetiva de tributos sobre o lucro. Effective tax rate on profit in Brazil of B3 companies: a study of the relationship of financial return indicators Abstract The list of financial return indicators for companies in Brazil, Bag, Counter-B3, with the management of the effective tax rate on profit, influenced the research. For this, the relationship between the financial indicators of return on equity-ROE and the return on invested capital-ROIC was identified with the effective rate of taxes on profit. The research has an explanatory characteristic and regression with panel data was used to analyze the results. As a result, ROIC has shown that possibly the most profitable companies have higher effective tax rates. The ROE showed that possibly the organization’s investment in the payment per directors performance leads them to invest more resources in the tax management, generating an increase to the shareholders’ return. Financial leverage indicates that in Brazil a leveraged structure can contribute to a greater tax burden, leading companies to increase the holdings of third-party capital, neutralizing the effect of leverage on taxation. The size of the company may indicate that the larger the company size, the smaller the company's profit tax. As a result to the effective tax rate, was identified that the enterprises they use the benefits of reducing the effective tax rate on profit, since the non- parametric signal test demonstrated that in 80% of the observations, the effective rate of the analyzed companies are lower than the nominal rate of 34%, soon the companies to use the effects of tax management. Keywords: Indicators of financial return of companies. Tax management. Effective tax rate income.

Download Full-text

Determinants of corporate R&D expenditures: the role of taxes

Central European Economic Journal ◽

10.2478/ceej-2020-0007 ◽

2020 ◽

Vol 7 (54) ◽

pp. 110-126

Author(s):

Dorota Wasiluk ◽

Anna Białek-Jaworska

Keyword(s):

Tax Rates ◽

Cross Sectional ◽

Effective Tax Rates ◽

Tax Rate ◽

Long Run ◽

Internal Funds ◽

The Difference ◽

The Relationship ◽

D Investment

AbstractThe paper aims to find the relationship between corporate expenditures on R&D and tax burdens comparing German with French R&D incentives. We use the OLS method for the financial and patent cross-sectional data retrieved from the Amadeus database. The results confirm that firms with higher tax spread (the difference between the nominal and effective tax rates) spend less on R&D. These are in line with findings of a positive relationship between corporate R&D investment and tax burdens. Thus, firms that invest in R&D more pay higher taxes. However, they are less profitable as the return on R&D investment is visible only in the long run. German corporate expenditures on R&D are significantly sensitive to internal funds (proxied by cash flow) and depend on debt, contrary to French. The results indicate that the French firm's age (a phase of life cycle) has a significant impact on spending on R&D compared to German. Whereas in both countries, corporate expenditures on R&D are sensitive to the number of obtained patents. The capability of reducing the level of tax burdens below the nominal tax rate in the case of older German firms stimulates them to increase their R&D expenditures. However, German firms can decrease tax due to the use of R&D grants (revenues without taxation) in the absence of other tax incentives related to R&D.

Download Full-text

The Political Economy of Taxation: Some Evidence for Canada

Public Finance Quarterly ◽

10.1177/109114218801600304 ◽

1988 ◽

Vol 16 (3) ◽

pp. 315-329 ◽

Cited By ~ 1

Author(s):

André Blais ◽

François Vaillancourt

Keyword(s):

Manufacturing Industry ◽

Tax Avoidance ◽

Tax Rates ◽

Corporate Tax ◽

Effective Tax Rates ◽

Tax Rate ◽

Independent Variables ◽

Methodological Problems ◽

Canadian Manufacturing ◽

The Relationship

The article examines the determinants of variations in the effective average tax rate among Canadian manufacturing industry. It replicates a previous study (Salomon and Siegfried, 1977) on the U.S. corporate tax that found relationships between the economic structure and tax avoidance rates. Some methodological problems in the study are identified, which raise doubts about their conclusions. It is shown that effective tax rates fluctuate substantially over time and that the results may be sensitive to the year selected for analysis. As a consequence, tax-avoidance rates are regressed against a number of independent variables in two different years: 1974 and 1979. The overall weakness of the relationship is striking. With our best measure of the tax-avoidance rate, 2 out of 12 variables are significant in 1974 and one in 1979. These findings suggests that the corporate income tax may not be as important an instrument of industrial policy as it is sometimes claimed to be.

Download Full-text

The Economic Consequences Of Repealing The Estate Tax Law

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v1i1.2955 ◽

2011 ◽

Vol 1 (1) ◽

Author(s):

Raj Kiani ◽

Dwight Call ◽

M.A. Sangeladji

Keyword(s):

Income Taxes ◽

Economic Consequences ◽

Tax Rates ◽

Font Size ◽

Estate Tax ◽

Charitable Contributions ◽

Tax Rate ◽

Distribution Of Wealth ◽

Class Level ◽

The Individual

The federal estate tax has been a part of our tax structure since the founding of the country. It is the federal government’s only tax on accumulated transfers of wealth. From its inception in 1916, it has been applied only to very large estates. The transfer of wealth can take place during the individual’s life (gift) or at the time of death (estate).  Both types of transfer are combined and taxed according to the Taxpayer Relief Act of 1976. The Taxpayer Relief Act of 1976 was an important legislation affecting the structure of both the federal estate and gift taxes. In this Act, a unified system of taxation was established which treats both transfers of wealth, either during the life of the owner (gift) or at his or her death (estate) uniformly. The recent legislation of 2001 made drastic changes to the tax rates and the level of exemptions of the 1976 federal estate tax. According to this legislation, the maximum estate tax rate will drop gradually during the period of 2002-2010. Beginning in 2002, the maximum unified tax rate is reduced from 55% to 50%. This drop will reach to 45% by the year 2007 and will remain unchanged till 2009. The limit of exemption for a taxable transfer of wealth will increase from $1,000,000 to $1,500,000 by the year 2004, to $2,000,000 by 2006, to $3,500,000 by 2009, and to infinity by 2010 (estate tax will be repealed).  This original version of federal estate tax will come back in 2011, unless the Congress decides differently and changes the law. Like other social, economic, and tax issues, the transfer of wealth tax (estate and gift) is subject to debate and disagreements. The opponents of the estate tax support their views by referring to the immorality aspect of the tax and its undesired economic consequences. The supporters of the estate tax present their arguments on the basis of fairness and the ability of the tax to encourage charitable contributions. In addition, they believe that the economic consequences of repealing the estate tax would ripple through our economy and reduce federal revenues. Consequently, it could bring inequity and unfair distribution of wealth among the citizens and eventually could culminate in high difference in the class level of citizens. In our view, the federal estate tax is a tax worth fighting to keep and attempting to improve. If it were repealed, the burden of taxes would be felt more by those who have no wealth and had paid their income taxes on their earned income once before. Consequently, the lawmakers should keep the federal estate tax and fixing it by adjusting the amount of exemptions and the tax rates to reasonable, effective, and fair levels.

Download Full-text

Local Taxes and Fees as a Source of Revenue for Polish Municipalities: Substitutes or Complements?

e-Finanse ◽

10.2478/fiqf-2018-0019 ◽

2018 ◽

Vol 14 (3) ◽

pp. 49-59

Author(s):

Julita Łukomska ◽

Jarosław Neneman

Keyword(s):

Property Tax ◽

Tax Rates ◽

Local Authorities ◽

Tax Rate ◽

Local Public Services ◽

Local Taxes ◽

Science Centre ◽

National Science ◽

Water Provision ◽

The Relationship

AbstractThe main purpose of this article is analysis of the relationship between local tax and fee policies in Poland. We argue that local authorities have similar and significant discretion over tax and fee policy and, therefore, they can be analysed in a similar way. Links between these policies are analysed to find out whether they are of complementary or substitutive nature. Panel data on 578 Polish municipalities from 2012 to 2016 includes information on property tax rates and tariffs for water provision and sewage disposal for households and companies and is used to run panel regression analysis and to perform a quasi-experiment. The results indicate that there is a relationship between tax and fee policies as well as that taxes and fees are complements for local authorities. Only when a property tax rate has reached a “ceiling”, the municipalities increase fees at a faster rate than comparable municipalities below the ceiling – in this case a fee can be regarded as a substitute for a tax.The paper is based on results of the “Fees for local public services - financial and political importance” research project. The project is funded by Narodowe Centrum Nauki (National Science Centre) grant number UMO-2015/19/B/HS4/02898

Download Full-text

The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act

American Economic Journal Economic Policy ◽

10.1257/pol.6.1.114 ◽

2014 ◽

Vol 6 (1) ◽

pp. 114-136 ◽

Cited By ~ 8

Author(s):

Laura Kawano

Keyword(s):

Capital Gains ◽

Tax Rates ◽

Capital Gains Tax ◽

Tax Rate ◽

Consumer Finances ◽

Household Portfolio ◽

Using Data ◽

The Relationship ◽

Dividend Tax

This paper provides evidence that dividend and capital gains tax rates importantly influence household portfolio choices. Using data from the Surveys of Consumer Finances around the 2003 dividend tax reductions, I estimate the relationship between taxes and household portfolio dividend yields. I find that a one percentage point decrease in the dividend tax rate relative to the long-term capital gains tax rate causes household portfolio dividend yields to increase by 0.04 percentage points. The results suggest that high income households significantly increased their portfolio dividend yields in response to the 2003 dividend tax rate reductions. (JEL D14, G11, G35, H24)

Download Full-text

Offshore Deposits and Tax Policies

International Journal of Recent Technology and Engineering - 2 ◽

10.35940/ijrte.c4253.098319 ◽

2019 ◽

Vol 8 (3) ◽

pp. 1106-1112

Keyword(s):

Tax Evasion ◽

Income Tax ◽

Tax Policies ◽

Tax Rates ◽

Tax Havens ◽

Tax Rate ◽

The Relationship

The study aims to empirically analyze the relationship between Taxes and Offshore Deposits. A major issue in the present-day economic world has been the use of tax havens or formally called ‘Offshore Deposits’ by wealthy individuals and companies to evade tax. The prospect of the following study is to analyze what factors really lead to these deposits and whether reducing top income tax rate would be an effective mean to combat these tax evasions. In this paper, it is argued that in fact, tax rates alone are not a reason and when various countries divided in groups lead so several other significant determinants of tax evasion.

Download Full-text