A firm's deferred tax position can affect its incentives to lobby for or against tax reform, aswell as how the firm is affected by a transition from one tax regime to another. We compiledisaggregated deferred tax position data for a sample of large U.S. firms between 1993 and 2004 toanalyze the incentives created by these positions and to explore how these positions might affectfirm behavior before and after a pre-announced tax rate change. We find substantial heterogeneityin the size and sign of deferred tax positions. While half of our sample firms report a deferred taxposition of less than three percent of assets, approximately ten percent report a position in excess often percent of assets. Although one might expect firms to defer the reporting of income when thereis a pre-announced reduction in the corporate tax rate, we find that approximately one third of thefirms in our sample would have an incentive to accelerate income in such a setting because doing sowould maximize the value of their net operating loss carryforwards. We estimate that if the federalstatutory corporate tax rate had been reduced from 35 to 30 percent in 2004, the resultingrevaluation of deferred tax assets would have increased net income in that year by an average of16.5 percent for firms with a net deferred tax liability, while reducing net income by an average of11.4 percent for those firms with a net deferred tax asset. Our results suggest that the heterogeneousdeferred tax positions of large U.S. corporations create substantial variation in the short-run effectof changes in corporate tax rates on reported earnings. Recognizing these divergent incentives isimportant for understanding the political economy of corporate tax reform.
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