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1 Huaqun Li & Kyle Pomerleau, Measuring Marginal Effective Tax Rates on Capital Income under Current Law 1 (2020)

handle is hein.taxfoundation/mmgeftx0001 and id is 1 raw text is: Measuring Marginal Effective Tax Rates on Capital Income Under Current Law Huaqun Li Senior Economist Kyle Pomerleau Former Chief Economist Key Findings The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels. We are a 501(c)(3) nonprofit organization. @2020 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org * This paper updates the user cost of capital calculation in Tax Foundation's General Equilibrium model by including the split of equity and debt financing by businesses and separating out savers' required rate of return from the user cost of capital for businesses. * This paper computes the marginal effective tax rate for eight types of business investments under current law. We find that the marginal effective tax rates (METRs) for corporate assets is slightly higher than for noncorporate assets. * The comparison of METRs under the Tax Cuts and Jobs Act (TCJA) against pre-TCJA indicates that TCJA temporarily reduces METRs for all asset types and business formations. * The phaseout of the TCJA's temporary provisions will increase the marginal effective tax rates on all asset types, especially in the noncorporate sector. Starting in 2026, the weighted average marginal effective tax rate in noncorporate sectors will be around 1.6 percentage points higher than corporate sectors. * This study first examines marginal effective tax rates for the federal tax system and then includes state and local taxes, such as property taxes and state business income taxes, to compute marginal effective tax rates. The addition of state and local taxes significantly increases the METRs across all asset types. FISCAL FACT No. 687 Jan. 2020