Effects of Selected Tax Policies on Management and Growth of A Catfish Enterprise
Abstract A multiperiod programming model was used to simulate the effects of lower marginal income tax rates, the soil and water conservation deduction, and the cash tax accounting option on firm growth for a “representative” farm operating in the Alabama Black Belt region. Results show the lowered marginal income tax rates associated with the Economic Recovery Tax Act (ERTA) of 1981 provide a positive growth stimulus to the modeled firm as measured by accumulated net worth over a 10-year planning horizon. The soil and water conservation deduction in general provides greater tax relief to the modeled firm than either the ERTA income tax rate changes or the cash tax accounting provision. Important complementary and substitute relationships were found to exist between marginal income tax rates and the various tax provisions studied, implying care must be exercised when attempting to evaluate the impact on farm firms of changes in tax policy.
Consideration of Investment Tax Credit in a Multiperiod Mathematical Programming Model of Farm Growth
Marginal federal income tax rates on farm firms have been increasing due to higher taxable incomes from increasing farm size, increasing off-farm income of farm families, and inflation. Krause and Shapiro and Barry (p. 29) have noted that agricultural economics research on the impact of these increased taxes is limited. The investment tax credit is a provision of federal income tax law that has received especially limited research attention. Kay and Rister analyzed the impact of this provision on beef cattle replacement, and Chisholm considered its impact on farm machinery decisions. However, the investment tax credit has not been considered in mathematical programming models of farm firm growth in the same manner as other income tax provisions (Vandeputte and Baker, Barry and Willmann). The purpose of this paper is to present a method of incorporating investment tax credit provisions in a multiperiod mathematical programming model. Specific objectives include: review of the theory of capital budgeting in reference to the investment tax credit, consideration of a tax submatrix for a programming model which includes investment tax credit, and presentation of an empirical example.
Specifying the Allocation of Income among Taxes, Consumption, and Savings in Linear Programming Models
The proper specification of tax liabilities and consumption behavior is a significant problem in designing models for studying firm growth. A specification is suggested to represent allocation of income between consumption and savings in multiperiod linear programming models, while accounting for the effects of income tax. It is proposed as a method that conserves row space while providing flexibility in representing actual tax liabilities and actual consumption behavior in terms relevant for the study of growth alternatives and constraints.