The Impact of Capital Gains Tax Rates on Reported Wage and Salary Income

We use the market reaction to capital gains tax rate reduction in the 1997 Tax Relief Act to investigate the market reaction to a change in investor-level tax rates. We find that the positive market reaction was lower for dividend-paying securities and securities with longer expected holding periods. Our results also support the hypothesis that a longer expected holding period reduces the impact of the dividend-paying status. These results are consistent with the tax capitalization model and suggest that the expected holding period is a significant variable in explaining the market reaction to a change in capital gains tax rates.

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THE IMPACT OF THE CAPITAL GAINS TAX ON BOND YIELDS

National Tax Journal ◽

10.1086/ntj41791912 ◽

1973 ◽

Vol 26 (4) ◽

pp. 575-583

Author(s):

JOHN S. McCALLUM

Keyword(s):

Capital Gains ◽

Capital Gains Tax ◽

Bond Yields ◽

The Impact

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Firm Heterogeneity and the Long-run Effects of Dividend Tax Reform

American Economic Journal Macroeconomics ◽

10.1257/mac.2.1.131 ◽

2010 ◽

Vol 2 (1) ◽

pp. 131-168 ◽

Cited By ~ 16

Author(s):

François Gourio ◽

Jianjun Miao

Keyword(s):

Capital Accumulation ◽

Firm Heterogeneity ◽

Percent Level ◽

Capital Gains ◽

Tax Rates ◽

Aggregate Productivity ◽

Capital Gains Tax ◽

Productivity Shocks ◽

Long Run ◽

Dividend Tax

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent. (JEL D21, E22, E62, G32, G35, H25, H32)

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Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes

The Accounting Review ◽

10.2308/accr.00000038 ◽

2011 ◽

Vol 86 (3) ◽

pp. 887-914 ◽

Cited By ~ 68

Author(s):

Jennifer L. Blouin ◽

Jana S. Raedy ◽

Douglas A. Shackelford

Keyword(s):

Generalized Method Of Moments ◽

Capital Gains ◽

Share Repurchases ◽

Individual Investors ◽

Tax Rates ◽

Capital Gains Tax ◽

Firm Level ◽

Shareholder Taxes ◽

Tax Returns ◽

Directors And Officers

ABSTRACT: This study jointly evaluates firm-level changes in investor composition and shareholder distributions following a 2003 reduction in the dividend and capital gains tax rates for individuals. We find that directors and officers, but not other individual investors, rebalanced their portfolios to maximize after-tax returns in light of the new tax rules. We also find that firms adjusted their distribution policy (specifically, dividends versus share repurchases) in a manner consistent with the altered tax incentives for individual investors. To our knowledge, this is the first study to employ simultaneous equations to estimate both shareholder and managerial responses to the 2003 rate reductions. We find that the generalized method of moments (GMM) estimates are substantially stronger than OLS estimates, consistent with our expectation that investor and manager responses are simultaneously determined. Failure to estimate systems of equations may account for some of the weak and conflicting results from prior studies of the 2003 rate reductions.

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Capital Gains Taxes and Stock Return Volatility

Journal of the American Taxation Association ◽

10.2308/atax-50509 ◽

2013 ◽

Vol 35 (2) ◽

pp. 1-31 ◽

Cited By ~ 5

Author(s):

Zhonglan Dai ◽

Douglas A. Shackelford ◽

Harold H. Zhang

Keyword(s):

Stock Returns ◽

Stock Return ◽

Cash Flows ◽

Capital Gains ◽

Return Volatility ◽

Capital Gains Tax ◽

Tax Rate ◽

Stock Return Volatility ◽

Capital Gains Taxes ◽

The Impact

ABSTRACT This paper presents an empirical investigation of the impact of capital gains taxes on stock return volatility. We predict that the more stock returns are subject to capital gains taxation, the greater the increase in return volatility following a capital gains tax rate cut due to reduced risk-sharing in firms' cash flows between shareholders and the government. Consistent with this prediction, we find larger increases in the return volatility for more appreciated stocks than for less appreciated stocks and for non-dividend-paying stocks than for dividend-paying stocks after both 1978 and 1997 capital gains tax rate reductions. The findings imply that capital gains taxes convey a heretofore overlooked benefit of lower stock return volatility.

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Long-Term Capital Gains Tax Strategies: Correlated Protective Put Strategy

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v2i8.2909 ◽

2011 ◽

Vol 2 (8) ◽

Author(s):

John R. Aulerich ◽

James Molloy

Keyword(s):

Stock Price ◽

Capital Gains ◽

Tax Rates ◽

Capital Gains Tax ◽

Tax Rate ◽

Holding Period ◽

Put Option ◽

Highly Correlated ◽

One Year

A reduction in the long-term capital gains tax rate provides investors with new strategies to minimize taxes and protect investment gains.  One such opportunity exists when an investor decides to sell a profitable stock with a holding period of less than one-year, resulting in short-term ordinary taxes.  The investor would find it more beneficial to sell the stock after one-year lapses, resulting in lower long-term capital gain taxes, although the longer holding period exposes the investor to the uncertainty of stock price movement.  A strategy to extend the holding period without excess risk would be to use the protective put option strategy, sometimes referred to as “investment insurance”.  The strategy involves the purchase of a put option to protect against the possible decline in the stock price, to take advantage of the lower long-term capital gains tax rate, and to preserve the upside potential of the stock.  Pursuant to IRS Publication 550, the IRS does not allow the use of a protective put to extend the holding period on the same security considered for sale.  Since the IRS does not allow a direct protective put hedge, this study will explore an alternative strategy involving the purchase of a put on a highly correlated investment to extend the holding period to recognize lower capital gains tax rates.  The paper presents example situations when an investor benefits from utilizing the correlated protective put option strategy.

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CEO Tax Effects on Acquisition Structure and Value

The Accounting Review ◽

10.2308/tar-2018-0376 ◽

2020 ◽

pp. 0000-0000 ◽

Cited By ~ 3

Author(s):

Michelle Hanlon ◽

Rodrigo Verdi ◽

Benjamin P. Yost

Keyword(s):

Tax Incentives ◽

Capital Gains ◽

Tax Rates ◽

Agency Conflicts ◽

Capital Gains Tax ◽

Target Firm ◽

Large Sample ◽

Tax Effects

We hypothesize that prior evidence of target shareholder capital gains tax liabilities affecting acquisition features is driven by the tax liabilities of the target firm CEO. To test this, we estimate CEOs' capital gains tax liabilities for a large sample of acquisitions and examine the effects of such liabilities on acquisition outcomes. Results indicate that the previously documented positive relations between shareholder-level capital gains tax rates and 1) the likelihood of a nontaxable acquisition (Ayers, Lefanowicz, and Robinson 2004) and 2) acquisition premiums (Ayers, Lefanowicz, and Robinson 2003) are largely driven by CEO tax effects. We also find evidence consistent with 1) CEOs' tax incentives leading to potential agency conflicts under certain conditions and 2) acquisition structure or premium being adjusted in response to CEOs' taxes depending on the alternatives available to the acquirer. Our study contributes to our understanding of what and whose taxes affect acquisition structure and value.

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The impact of capital gains tax exemption on housing sales

Applied Economics Letters ◽

10.1080/13504850701720205 ◽

2008 ◽

Vol 17 (3) ◽

pp. 213-216 ◽

Cited By ~ 1

Author(s):

Shakil Quayes

Keyword(s):

Capital Gains ◽

Capital Gains Tax ◽

The Impact

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Unitisation of petroleum project interests

The APPEA Journal ◽

10.1071/aj14132 ◽

2015 ◽

Vol 55 (2) ◽

pp. 497

Author(s):

Wee Kenneth

Keyword(s):

Oil And Gas ◽

Development Project ◽

Capital Gains ◽

Capital Gains Tax ◽

Resource Base ◽

Resource Rent ◽

Petroleum Resource ◽

Key Issues ◽

The Impact ◽

Fiscal Implications

Traditionally, the unitisation of oil and gas project interests involved the exchange of legal ownership interests between project proponents to achieve uniformity of their licence interests across the project. Recently, more contemporary and creative forms of unitisation have emerged including economic, beneficial and contractual unitisation approaches that do not necessarily involve the transfer of legal title interests. Unitisation is a way of pooling resources to improve the likelihood of an economically viable project for participants and to overcome practical challenges resulting from uneven interests in the component parts of a broader project. In some cases, unitisation is the catalyst for project sanction. Achieving agreement and alignment on the most equitable unitisation outcome, including the valuation of the relative resource base and ownership stakes, is not easy. It involves navigating a myriad of legal, commercial, operational and financial considerations. A project residing in both federal and state waters can add increasing layers of complexity due to the interaction between overlapping federal and state jurisdictional and taxing rights. This extended abstract discusses key issues arising in various unitisation models and considers the associated fiscal implications from income tax, capital gains tax, petroleum resource rent tax and royalty perspectives. It also examines the government’s announced tax measures for dealing with the swapping of interests or interest realignments resulting in a common development project and the impact and effectiveness of these rules on unitisation arrangements.

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CAPITAL GAINS TAX RATES AND STOCK MARKET VOLUME

National Tax Journal ◽

10.1086/ntj41788862 ◽

1990 ◽

Vol 43 (4) ◽

pp. 411-425

Author(s):

YOLANDA K. HENDERSON

Keyword(s):

Stock Market ◽

Capital Gains ◽

Tax Rates ◽

Capital Gains Tax ◽

Market Volume

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