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Introduction

The statutory rate on corporate capital gains currently is equal to the statutory tax rate on ordinary corporate income. Although individual capital gains taxes have received an enormous amount of attention, both in the popular media and in the academic literature, corporate capital gains have received very sparse attention. In principle, however, the distortions that arise from corporate capital gain taxation are analogous to those that might arrive from individual capital gains taxation. Corporations might face a higher user cost of capital and they could find that their previous purchases have been "locked in" inthe sense that asset sales are avoided because of their tax consequences.

As a general rule, corporate capital gains taxation has been ignored in the investment literature, and corporate capital gains tax rates have been excluded from studies that have attempted to examine the impact of taxation on firm-level investment. For example, a recent review of the literature in this area by Kevin A. Hassett and R. Glenn Hubbard does not mention a single study that addresses the theoretical or empirical impact of corporate capital gains taxation on firm behavior. . . .

Kevin A. Hassett is a senior fellow and director of economic policy studies and Alan D. Viard is a resident scholar at AEI.