Inflation and the Taxation of Capital Income in the Corporate Sector

Martin Feldstein and Lawrence Summers

No 312, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This detailed examination of the effect of inflation on the taxation of capital used by nonfinancial corporations considers not only the tax paid by the corporations them- selves but also the tax paid by the individuals and institutions that provide capital to the corporate sector. Although corporations deduct nominal interest payments that exceed real interest, the additional taxes that lenders pay slightly exceed the tax saving by corporate borrowers. Our calculations indicate that inflation raised the 1977 tax burden on corporate sector capital income by more than $32 billion, a 50 percent increase in the total tax burden.

Date: 1979-01
Note: PE
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Published as Feldstein, Martin and Summers, Lawrence. "Inflation and the Taxation of Capital Income in the Corporate Sector." National Tax Journal, Vol. 32, No. 4, (December 1979), pp. 445-470.
Published as Inflation and the Taxation of Capital Income in the Corporate Sector , Martin Feldstein, Lawrence Summers. in Inflation, Tax Rules, and Capital Formation , Feldstein. 1983

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