Taxation of corporate sector on capital income under the economic recovery tax act of 1981

The Economic Recovery Tax Act of 1981 included large business and individual tax cuts. The Accelerated Cost Recovery System changes two key provisions for capital cost recovery -- the depreciation allowance and the investment tax credit. The marginal effective corporate tax rates calculated from the cost of capital formula under ACRS are presented in this thesis. The "overall" effective marginal tax rates for different inflation rates are calculated under the new tax law. It considers not only the tax paid by the corporations themselves but also the tax paid by the individuals and institutions that provide capital to the corporate sector. My calculations indicate that ERTA reduces the overall effective marginal tax rate, especially when inflation rate is low. It is found that the overall effective tax rate is sensitive to inflation