In the Nick of Time: Performance-Based Compensation and Proactive Responses to the Tax Cuts and Jobs Act

2020 ◽  
Author(s):  
Jonathan Durrant ◽  
James Jianxin Gong ◽  
Jennifer K Howard
Keyword(s):  
Stock Option ◽  
Tax Rates ◽  
Tax Rate ◽  
Weak Evidence ◽  
Performance Based Pay ◽  
Performance Based Compensation ◽  
Definition Of ◽  
Jobs Act ◽  
Option Compensation ◽  
Tax Cuts

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced two major changes that may influence executive compensation: (1) reducing corporate tax rates from 35 to 21 percent and (2) eliminating the performance-based pay exception in Section 162(m). These changes provide incentives to maximize deductible compensation expense in 2017, before the TCJA goes into effect. Consistent with our expectation, we find that the increase in CEO bonus and stock option compensation is significantly greater in 2017 relative to prior years. Our difference-in-difference results are consistent with the tax rate reduction driving the bonus increase and the repeal of the performance-based exception leading to the increase in CEO stock options. The TCJA also changed the definition of covered employees to include the CFO. We find weak evidence for abnormal increases in CFO performance-based compensation. Overall, our findings suggest that firms' responded to the TCJA in the period before it was effective.

scholarly journals The Tax Cuts and Jobs Act and the Middle Class

2019 ◽  
Vol 26 (01) ◽  
pp. 53
Author(s):  
Deborah Combs ◽  
Brian Nichols
Keyword(s):  
Middle Class ◽  
The United States ◽  
Census Bureau ◽  
Tax Rates ◽  
United States Census ◽  
United States Census Bureau ◽  
Definition Of ◽  
Almost All ◽  
Jobs Act ◽  
Tax Cuts

This paper explores how the tax cuts and jobs act of 2017 impacts middle-class taxpayers by calculating the tax liability at different levels of income and deductions in 2017 versus 2018. The results confirm the statements supporting the positive effect of the tax change for the middle class. The tax cut and jobs act eliminates personal exemptions, changes the standard deductions at various incomes and family sizes, and lowers marginal tax rates. After providing details of the act, this research examines the definition of the U.S. middle class by using prior research from the Pew Research Center, the United States Census Bureau, and the federal reserve to determine which income levels are attributable to the middle class. Then the tax liability for these income classes is calculated for single and married filing jointly taxpayers in both 2017 and 2018 to determine if the tax cuts and jobs act reduces the tax liability for the middle class. The results show that in almost all scenarios the tax liability in 2018 will be lower than in 2017, regardless of whether standard or itemized deductions are taken. The marriage penalty is no longer applicable, and the new tax act provides a substantial benefit to large families

scholarly journals The Effect of the Tax Cuts and Jobs Act on the Choice between Traditional and Roth IRAs

2020 ◽  
Vol 27 (2) ◽  
pp. 30
Author(s):  
Brian Nichols ◽  
Chioma Nwogu
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Rates Of Return ◽  
Tax Rate ◽  
Tax Benefits ◽  
Roth Ira ◽  
Tax Savings ◽  
Jobs Act ◽  
The Impact ◽  
Tax Cuts

This paper analyzes the impact of the tax cuts and jobs act on the income taxeffectiveness of the Roth IRA versus the traditional IRA for investors who maximizetheir contributions prior to retirement. Since the tax cuts and jobs act reduced marginalincome tax rates, the tax benefits gained from a traditional IRA decrease compared toa Roth IRA. Based on set investment parameters, an investor makes monthly paymentsto the IRAs for a specific period and the tax savings obtained from the traditional IRAare reinvested into a separate taxable account. The after-tax accumulation of wealth ineach account is calculated to determine which IRA produces the largest available aftertax withdrawals after retirement. A break-even analysis is also constructed to determinethe marginal income tax rate and investment return that makes an investor indifferentbetween the two IRAs. The results illustrate that the decision to invest in a traditionalIRA versus a Roth IRA depends on both the rates of return and whether the marginalincome tax rate is the same or different during the contribution and withdrawal periods.

Corporate Behavioral Responses to the TCJA for Tax Years 2017-2018

2020 ◽  
Vol 73 (4) ◽  
pp. 1109-1134
Author(s):  
Tim Dowd ◽  
Christopher Giosa ◽  
Thomas Willingham
Keyword(s):  
Behavioral Responses ◽  
Corporate Tax ◽  
Corporate Response ◽  
Tax Rate ◽  
Tax Returns ◽  
Large Corporations ◽  
Jobs Act ◽  
Statutory Tax Rate ◽  
Tax Cuts

We analyze the initial corporate response to the 2017 enactment of the “Tax Cuts and Jobs Act” (TCJA). The TCJA changed many corporate tax provisions, including a reduction of the corporate statutory tax rate from 35 percent to 21 percent effective in 2018 and sweeping changes to the taxation of income earned abroad by U.S. corporations. Based on a sample of U.S. corporate tax returns, we find that corporations accelerated deductions into 2017 and delayed income into 2018, thereby minimizing their taxes. We estimate an income and deduction shifting tax elasticity of -0.11 and 0.08, respectively. Additionally, we study detailed tax returns of 81 large corporations to understand how those changes impacted them.

Making the Trade in the National Basketball Association (NBA): A Research Case Exploring Like-Kind Exchange Treatment Post Tax Cuts and Jobs Act

2021 ◽  
Author(s):  
Paul Connell Nylen ◽  
Brian William Huels
Keyword(s):  
Relevant Information ◽  
National Basketball Association ◽  
Financial Assets ◽  
Substantial Impact ◽  
Professional Basketball ◽  
Tax Research ◽  
Definition Of ◽  
Fair Market Value ◽  
Jobs Act ◽  
Tax Cuts

The primary aim of this activity is to explore tax issues related to an exchange of non-financial assets. Students are presented with a case that involves a fictional trade of players between two teams in the National Basketball Association, the Milwaukee Bucks and the Washington Wizards. Using a trade date of January 1, 2018, students are presented with the opportunity to explore the treatment of a non-financial asset like-kind exchange post Tax Cuts and Jobs Act of 2017. In addition, students are challenged to determine the definition of fair market value and how its calculation could have a substantial impact on the finances of a professional basketball team. Data gathered from pre and post-questionnaires, including both objective measures and student experiential feedback, supports the usage of this activity. Results show that this case increased students' ability to understand and summarize relevant information from a complex set of facts while also growing their tax knowledge and tax research skills.

How do Reductions in Foreign Country Corporate Tax Rates Affect U.S. Domestic Manufacturing Firms?

2020 ◽  
Author(s):  
Jaewoo Kim ◽  
Michelle L. Nessa ◽  
Ryan J. Wilson
Keyword(s):  
Manufacturing Firms ◽  
Foreign Country ◽  
Investment Strategies ◽  
Tax Rates ◽  
Corporate Tax ◽  
Cross Sectional ◽  
Tax Rate ◽  
Domestic Firms ◽  
The Impact ◽  
Tax Cuts

We examine the effects of increased competition stemming from corporate tax rate cuts in foreign competitors' home countries on U.S. domestic manufacturing firms. We develop a measure of U.S. domestic firms' exposure to changes in foreign country tax rates and validate that the measure captures increased competition in the U.S. We find that on average U.S. domestic firms lose market power following declines in foreign country tax rates. We also find that on average U.S. domestic firms respond by increasing investment in research and development and capital expenditures and by improving total factor productivity. In cross-sectional analyses, we find the impact of foreign tax cuts is concentrated among U.S. domestic firms with low ex ante product differentiation. Taken together, these findings suggest that foreign country tax cuts escalate the competitive threat faced by U.S. domestic firms, and in response U.S. domestic firms alter their investment strategies and/or become more productive.

Federal Personal Income Tax Policy in the 1920s

1995 ◽  
Vol 55 (2) ◽  
pp. 285-303 ◽  
Author(s):  
Gene Smiley ◽  
Richard H. Keehn
Keyword(s):  
World War I ◽  
Income Tax ◽  
Tax Avoidance ◽  
Personal Income ◽  
Tax Rates ◽  
Personal Income Tax ◽  
World War ◽  
Tax Rate ◽  
Income Tax Policy ◽  
Tax Cuts

During the 1920s, federal personal income tax rates, which had been dramatically increased during World War I, were sharply reduced. These tax rate cuts have often been cited as an example of a successful supply-side policy, but they have also been criticized as policies designed primarily to benefit the wealthy. We argue that a primary motive for the tax cuts of the 1920s was the desire to reduce the tax avoidance by wealthier individuals that occurred as a result of the previous tax rate increases and that the tax cuts enacted did reduce tax avoidance.

scholarly journals Why Do (Some) Ordinary Americans Support Tax Cuts for the Rich? Evidence From a Randomized Survey Experiment

2021 ◽  
Author(s):  
David Hope ◽  
Julian Limberg ◽  
Nina Sophie Weber
Keyword(s):  
Tax Policy ◽  
Reference Points ◽  
Survey Experiment ◽  
Tax Rates ◽  
Policy Reforms ◽  
Tax Rate ◽  
Self Interest ◽  
Federal Income Tax ◽  
The Rich ◽  
Tax Cuts

Why do (some) ordinary citizens support tax cuts for the rich? A prominent explanation in the political economy literature stresses the role of unenlightened self-interest. According to this view, citizens consistently fail to gauge whether they are directly affected by tax policy reforms. We use a randomized survey experiment in the US to identify the drivers of preferences for cutting taxes on the rich. The results show that informing individuals of whether they are directly affected by a cut in the top federal income tax rate has no impact on preferences. We therefore find no support for the unenlightened self-interest explanation. In contrast, we find preferences for taxing the rich are fundamentally affected by information that shifts citizens' core fairness beliefs, as well as information on the past trajectory of top tax rates. Our results therefore align with explanations of tax policy preferences that emphasize the importance of fairness perceptions and reference points.

scholarly journals Policy Forum: Is Accelerated Depreciation Good or Misguided Tax Policy?

2019 ◽  
Vol 67 (1) ◽  
pp. 41-55
Author(s):  
Philip Bazel ◽  
Jack Mintz
Keyword(s):  
United States ◽  
Tax Reform ◽  
The United States ◽  
Tax Rates ◽  
Corporate Tax ◽  
Tax Base ◽  
Tax Rate ◽  
Accelerated Depreciation ◽  
The Government ◽  
Jobs Act

The authors examine the implications of Canada's response to the 2017 US tax reform. Canada's focus on accelerated tax depreciation will achieve lower marginal effective tax rates on capital for taxpaying companies, well below the US levels achieved with the Tax Cuts and Jobs Act that came into effect on January 1, 2018. By ignoring neutrality, the government offsets some of the potential gains by reducing the tax burden on capital, thereby failing to maximize efficiency gains from a better corporate tax system. Further, Canada's approach fails to respond to competitiveness effects of US reforms on corporate tax base erosion in Canada as companies shift profits to the United States. The low US tax rate on intangible income will draw certain functions to the United States. A more comprehensive approach to corporate tax reform, including some reduction in corporate income tax rates, would have been a preferable response.

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