The Effect Of The Tax Reform Act of 1986 On U.S. Manufacturing Corporations

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George E. Moody
Don P. Holdren

Keywords

Tax Reform Act of 1986, U.S. manufacturing corporations, investment tax credits, tax on foreign earned income, depreciation, cost of capital, Pittsburgh Plate Glass, General Motors, Chrysler

Abstract

This paper considers the impact of the Tax Reform Act of 1986 on capital intensive industries. While the findings in this report may not be applicable to service-type businesses, it was felt that the impact on manufacturing businesses would be the most severe. The specific areas of impact considered are investment tax credits, tax on foreign earned income, the change in depreciation, and the effect of lowering tax rates on the cost of capital. The authors reviewed the tax bill after it came out of the Joint Conference Committee ready for a vote of the Congress. In addition, studies were done using Pittsburgh Plate Glass for the investment tax credit effects and using General Motors and Chrysler for the cost of capital effects. Three of the four areas studied were found to impact negatively on either earnings or capital investment for manufacturing firms; so one would have to conclude that instead of being neutral, these new tax law changes will impact negatively on U.S manufacturing corporations.

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