The Effects of the Length of the Tax-Loss Carryback Period on Tax Receipts and Corporate Marginal Tax Rates
We investigate how the length of the net operating loss carryback period affects corporate liquidity and marginal tax rates. We estimate that extending the carryback period from two to five years, as recently proposed in President Obama's budget blueprint, would provide $19 ($34) billion of additional liquidity to the corporate sector for 2008 (2009). Our calculations imply that the benefits of the extended Carryback period would be concentrated in the homebuilding, automobile, and financial industries. Extending the carryback period would increase the marginal tax rate of loss firms by more than 200 basis points on average, which all else equal would lead corporations to use an additional $8 ($10) billion of debt and reduce tax payments by another $1.2 ($1.5) billion in 2008 (2009). Overall, the tax breakproposed by the Obama administration would have a significant liquidity effect on corporations suffering large losses in recent years. If the tax proposal were extended to include TARP firms, the liquidity effect would triple in size.
Simulating Corporate Marginal Income Tax Rates and Implications for Corporate Debt Policy
We study several important tax-related issues related to the measurement and use of corporate marginal tax rates. First, we develop an AR(1) method to simulate corporate marginal income tax rates and demonstrate that the AR(1) model improves upon the extant random walk and bin approaches. The new AR(1) approach captures firm-specific features, including mean-reversion in taxable income. Second, we calculate marginal tax benefit curves, which are the functions that determine the marginal tax rate for different levels of interest deduction. We integrate under tax benefit functions calculated using the AR(1), random walk, and bin approaches and find roughly similar implications for all methods, namely that the tax benefits of debt average about 13% of book asset value, gross of all costs. Third, we investigate the “kink” in benefit functions based on each of the three methods, that is, where the kink represents the point where marginal tax benefits begin to decline. The kink is sometimes used to infer how conservatively companies use debt. Our analysis indicates that implications about debt conservatism based on the AR(1) model are relatively robust to specification choices, while implications based on the bin model are sensitive to the specification. Overall, we find that all three models provide roughly similar implications about how aggressively companies appear to use debt once reasonable modifications are made to the debt conservatism metric. Importantly, controlling for a company’s interest usage, we find that variables commonly used to proxy for the costs of debt only partially explain that company’s kink (i.e., common cost variables only partially explain why some firms appear to use debt conservatively). We thank Alon Brav, Cam Harvey, Mark Leary, Per Olsson, Michael Roberts, Bob Winkler and the Texas Tax Reading Group for helpful feedback. Kim gratefully acknowledges financial support from the Kwanjeong Educational Foundation. Any errors are our own.
Super-resolution of overlapped waves in time and frequency domain in a directional borehole radar measurement
The Multiple Signal Classification (MUSIC) algorithm is modified in order to resolve multiple waves and to estimate reflection points in 3-D space. This algorithm is suitable for directional borehole radar with a circular dipole array antenna. Making use of the spatial frequency difference of acquired array signals, the signals are decorrelated, and the 3-D MUSIC algorithm is applied. The time domain signals of the singlehole array-type borehole radar are used in order to form a measurement vector in the MUSIC algorithm. A computer simulation confirms that the proposed algorithm may estimate the directions of arrival (DOA) for three signals. Applying the proposed algorithm to field experiment data successfully estimates the DOA of a reflected wave from a fracture in rock.