Table 1. Key Current Law U.S. cost of capital model parameters

2024-2025 2024-2025

21.00 28.00

18.04 25.28

18.76 29.97

30.89 34.31

27.59 30.47

-14.16 -14.60

26.49 29.32

17.60 17.79

6.89 6.89

0.3657

2024-2033 2024-2033

0.3226

0.2285

0.4241

0.6629

0.113

0.148

0.029

0.0780

0.045

0.322

0.173

0.291

31.68

-19.88

31.91

20.92

6.89

2026-33

28.00

26.01

31.02

34.60

Average Holding Period (in years) for Inventories 0.3657

Policy

2.10

5.74

6.33

 Owner-occupied Housing 0.4241

Share of After-tax Profit Retained by C- 0.6629

Vary by Industry (industry averages shown)

Share of Investment Financed with Debt

C-corporations 0.3226

 Pass-through Business 0.2285

Homeowner Debt

 Temporarily Tax Deferred 0.029

 Nontaxable 0.0780

Pass-through Business Debt

 Temporarily Tax Deferred 0.113

 Nontaxable 0.148

Corporate Debt

 Temporarily Tax Deferred 0.173

 Nontaxable 0.291

Corporate Equity

 Temporarily Tax Deferred 0.045

 Nontaxable 0.322

 Distributions of Nonqualified Annuities 20.78

 Marginal Effective ITC Rate on Total R&D 6.89

Vary by Sector

Shares of Marginal Saving Deferred or Exempted

 Interest Income 29.91

Home Mortgage Interest and Real Estate Tax -18.66

 Pass-through Business Income 30.44

 Dividend Income 19.10

 Long-term Capital Gains 19.43

 Short-term Capital Gains 32.32

Federal Tax Rates (in percent) 2026-33

 Statutory Federal Corporate Income Tax Rate 21.00

 Individual-Level Tax Rates on:

 Nominal Interest Rate 5.74

 Real Return on Equity 6.33

Current Law

Market Rates of Return (in percent)

 Inflation Rate 2.10

U.S. Department of the 

Treasury Office of Tax Analysis

October, 2023
Table 2. Current Lawf

 Effective Marginal Tax Rates on New Investment (in Percent)

2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

Business 22.1 22.9 24.1 24.9 24.9 24.9 24.9 24.9 24.9 24.9

 Corporate Business 20.0 20.9 22.8 24.1 24.1 24.1 24.1 24.1 24.1 24.1

 Asset Type

 Equipmenta 11.7 14.3 18.6 23.1 23.1 23.1 23.1 23.1 23.1 23.1

 Structuresb 18.3 19.1 21.4 23.9 23.9 23.9 23.9 23.9 23.9 23.9

 Landc 27.1 27.1 28.0 28.0 28.0 28.0 28.0 28.0 28.0 28.0

 Inventoriesc,d 30.8 30.8 31.4 31.4 31.4 31.4 31.4 31.4 31.4 31.4

 Intangiblese 8.7 8.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7

 Financing

 Debt-financed 9.6 10.9 15.3 17.2 17.2 17.2 17.2 17.2 17.2 17.2

 Equity-financed 21.7 22.5 24.0 25.1 25.1 25.1 25.1 25.1 25.1 25.1

 Pass-through Business 24.7 25.2 25.8 26.0 26.0 26.0 26.0 26.0 26.0 26.0

 Asset Type

 Equipmenta 20.1 23.9 14.0 19.7 19.7 19.7 19.7 19.7 19.7 19.7

 Structuresb 22.6 24.1 23.9 24.5 24.5 24.5 24.5 24.5 24.5 24.5

 Landc 27.8 27.9 28.9 28.9 28.9 28.9 28.9 28.9 28.9 28.9

 Inventoriesc,d 31.3 31.3 35.4 35.4 35.4 35.4 35.4 35.4 35.4 35.4

 Intangiblese 14.5 21.6 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0

Owner-occupied Housing 4.9 4.9 -2.1 -2.1 -2.1 -2.1 -2.1 -2.1 -2.1 -2.1

Total 15.3 15.6 15.5 16.8 16.8 16.8 16.8 16.8 16.8 16.8

Source: US Department of the Treasury, Office of Tax Analysis

Notes: LIFO = last in first out; FIFO = first in first out; EMTRs = effective marginal tax rates; TCJA = Tax Cut and Jobs Act.

The effective marginal tax rates shown include firm-level taxes and individual-level taxes. They also include Section 

179 expensing, the Research and Experimentation (R&E) credit, and bonus depreciation. 

The individual-level taxes used to calculate the EMTRs are budget-period (2024-33) 

averages obtained from OTA's Individual Tax Model. The inflation rate and the nominal interest rate used are also 

budget-period averages. They are taken from the Administration’s fiscal-year 2024 baseline forecast. 

a. Equipment includes both nonresidential and residential equipment.

b. Structures include nonresidential, tenant-occupied, and owner-occupied structures.

c. The economic depreciation rate is set to zero and no tax depreciation is included when calculating EMTRs.

d. For inventories, the effective marginal tax rate is calculated using a cost of capital that is a weighted average of 

the cost of capital under LIFO accounting and the cost of capital under FIFO accounting.

e. Intangible assets include research and development (R&D), artistic originals, and advertising. Advertising 

is assumed to be expensed. Artistic originals are assumed to be depreciated over 15 years using the straight-line method.

R&D is assumed to be amortized over 5 years.

f. The EMTRs assume that most of TCJA's individual provisions sunset at the end of calendar year 2025 and that 

U.S. Department of the 

Treasury Office of Tax Analysis

October, 2023
Table 3. Policyf

 Effective Marginal Tax Rates on New Investment (in Percent)

2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

Business 27.1 27.9 29.1 30.1 30.1 30.1 30.1 30.1 30.1 30.1

 Corporate Business 27.2 28.3 30.2 31.8 31.8 31.8 31.8 31.8 31.8 31.8

 Asset Type

 Equipmenta 15.6 19.2 24.3 30.1 30.1 30.1 30.1 30.1 30.1 30.1

 Structuresb 24.4 25.5 27.9 31.1 31.1 31.1 31.1 31.1 31.1 31.1

 Landc 35.4 35.4 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0

 Inventoriesc,d 39.9 39.9 40.4 40.4 40.4 40.4 40.4 40.4 40.4 40.4

 Intangiblese 19.0 19.0 19.7 19.7 19.7 19.7 19.7 19.7 19.7 19.7

 Financing

 Debt-financed 6.5 8.4 12.6 15.4 15.4 15.4 15.4 15.4 15.4 15.4

 Equity-financed 30.4 31.4 33.0 34.4 34.4 34.4 34.4 34.4 34.4 34.4

 Pass-through Business 26.2 26.6 27.1 27.4 27.4 27.4 27.4 27.4 27.4 27.4

 Asset Type

 Equipmenta 17.0 21.0 14.9 21.0 21.0 21.0 21.0 21.0 21.0 21.0

 Structuresb 24.2 25.4 25.1 25.7 25.7 25.7 25.7 25.7 25.7 25.7

 Landc 29.5 29.6 30.4 30.4 30.4 30.4 30.4 30.4 30.4 30.4

 Inventoriesc,d 34.7 34.7 37.3 37.3 37.3 37.3 37.3 37.3 37.3 37.3

 Intangiblese 13.3 18.7 7.2 7.2 7.2 7.2 7.2 7.2 7.2 7.2

Owner-occupied Housing 6.3 6.3 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7

Total 19.1 19.4 19.4 21.0 21.0 21.0 21.0 21.0 21.0 21.0

Source: US Department of the Treasury, Office of Tax Analysis

Notes: LIFO = last in first out; FIFO = first in first out; EMTRs = effective marginal tax rates; TCJA = Tax Cut and Jobs Act.

The effective marginal tax rates shown include firm-level taxes and individual-level taxes. They also include Section 

179 expensing, the Research and Experimentation (R&E) credit, and bonus depreciation. 

The individual-level taxes used to calculate the EMTRs are budget-period (2024-33) 

averages obtained from OTA's Individual Tax Model. The inflation rate and the nominal interest rate used are also 

budget-period averages. They are taken from the Administration’s fiscal-year 2024 baseline forecast. 

a. Equipment includes both nonresidential and residential equipment.

b. Structures include nonresidential, tenant-occupied, and owner-occupied structures.

c. The economic depreciation rate is set to zero and no tax depreciation is included when calculating EMTRs.

d. For inventories, the effective marginal tax rate is calculated using a cost of capital that is a weighted average of 

the cost of capital under LIFO accounting and the cost of capital under FIFO accounting.

e. Intangible assets include research and development (R&D), artistic originals, and advertising. Advertising 

is assumed to be expensed. Artistic originals are assumed to be depreciated over 15 years using the straight-line method.

R&D is assumed to be amortized over 5 years.

f. The EMTRs include Greenbook proposals that would raise the corporate income tax rate (from 21% to 28%) and marginal tax rates on dividend income and capital gains.

U.S. Department of the 

Treasury Office of Tax Analysis

October, 2023
1 

Notes on Effective Marginal Tax Rates (EMTRs) on new investment under Current Law (CL) and 

Policy (2024 Greenbook proposals): 

1. EMTRs on new investment are calculated under CL and policy (see Tables 2 and 3). The policy 

proposals include an increase in the flat federal corporate income tax rate from 21 percent to 28 

percent. They also include an increase in the top marginal individual income tax rate to prior law 

levels of 39.6 percent and higher marginal tax rates on dividend income and capital gains. 

2. EMTRs under CL and policy from 2027 forward are unchanged because bonus depreciation has 

fully phased out and TCJA’s individual provisions have sunset. 

3. EMTRs between 2024 and 2026 vary by year because bonus depreciation phases out at a rate of 20 

percentage points per year beginning in 2023 (i.e., bonus depreciation is 80 percent in 2023, 60 

percent in 2024, 40 percent in 2025, 20 percent in 2026, and 0 percent in 2027) and TCJA’s 

individual provisions sunset at the end of calendar year 2025. The effects of these year-to-year 

changes in tax law are captured in the cost of capital model using a “comprehensive” measure for the 

user cost of capital (ccss) given by 

(1) ccss = ((1 − ΓΓss) (1 − ττss ⁄ ))�rr + δδ + ((ΓΓss+1 − ΓΓss) (1 − ΓΓss ⁄ ))�, 

where ΓΓss = kkss + AAss(1 − kkss), AAss is the present value of the tax benefit from depreciation allowances, 

kkss is an investment tax credit rate, rr is the real discount rate, and δδ is the economic depreciation rate. 

Equation (1) includes a component, ((ΓΓss+1 − ΓΓss) (1 − ΓΓss ⁄ )), that makes the user cost of capital in 

period ss a function of an anticipated, one-period change in the present value (PV) of the tax benefit 

from depreciation allowances. The PV of the tax benefit from depreciation allowances can vary as a 

result of either a change in the business income tax rate or a change in the PV of tax depreciation. 

4. For corporate businesses, EMTRs on new investment for all asset types are higher under policy. 

However, it is worth noting that two types of effects work in opposite directions. The increase in the 

corporate income tax rate from 21 percent to 28 percent tends to increase the user cost of capital. 

However, it also increases the value of deductions for interest expenses, which has the effect of 

reducing the real discount rate on debt-financed investment. A lower real discount rate implies a 

higher PV of tax depreciation and a higher PV of the tax benefit of depreciation allowances. The net 

result of these offsetting effects can vary depending on how the investment is financed and the extent 

to which the investment benefits from depreciation. 

a. Under policy, the PV of tax depreciation and the PV of the tax benefit from depreciation 

allowances are higher for debt-financed corporate investment and for total corporate 

investment (a weighted average of debt-financed investment and equity-financed 

investment). This is true for equipment, structures, and intangibles. 

b. Under policy, the user cost of capital is lower for debt financed corporate investment in

equipment, structures, and intangibles over the entire budget period; it is also marginally 

lower for total corporate investment in equipment when bonus depreciation is in place. 

However, the user cost of capital is higher for total corporate investment in structures and 

intangibles over the entire budget period. 

U.S. Department of the 

Treasury Office of Tax Analysis

October, 2023
2 

c. All 43 types of equipment in the cost of capital model benefit from bonus depreciation. Only 

some of the 33 nonresidential structure types (e.g., electric structures, wind and solar 

structures) benefit from bonus depreciation, and all but one intangible asset type (advertising) 

is amortized.

d. As a result, only in the calculation of the user cost of capital for total corporate equipment 

investment when bonus depreciation is in place is the effect of the higher PV of the tax 

benefit of depreciation allowances not offset by the effect of the higher corporate tax rate.

5. For pass-through business investment, EMTRs on new investment for equipment and intangibles are 

lower under policy than they are under CL in 2024 and 2025. However, EMTRs on new investment 

in all asset types are higher under policy from 2026. 

a. The business income tax rate for pass-through businesses is just over 2.8 percentage points 

higher under policy in 2024 and 2025; it is almost 1.5 percentage points higher under policy 

between 2026 and 2033 (see Table 1). This means that the overall PV of tax depreciation and 

the overall PV of the tax benefit from depreciation allowances are higher for pass-through 

investment under policy in 2024 and 2025. 

b. A comparison of calculations for pass-through businesses and corporate businesses shows 

that, as compared to CL, the decline in the user cost of capital is greater for pass-through 

business investment than it is for corporate business investment. This is a function of the 

smaller percentage point increase in the pass-through business income tax rate. 

i. More specifically, for pass-through business investment, the user cost of capital is 

lower for equipment, structures, and intangibles under policy. The declines in the user 

cost of capital relative to CL are greatest for equipment and intangibles, the two asset 

types for which the EMTRs on new investment are lower in 2024 and 2025 relative to 

CL.

c. The EMTRs for pass-through business investment are also influenced by the expiration of the 

20-percent deduction for domestic, pass-through business income at the end of calendar year 

2025. 

i. Under both CL and policy, ((ΓΓss+1 − ΓΓss) (1 − ΓΓss ⁄ )) in equation (1) for equipment and 

structures is less than zero in 2024, resulting in a reduction in the user cost of capital. 

This produces an incentive to pull investment forward into the phase-out period for 

bonus depreciation. 

ii. Under both CL and policy, the EMTRs on pass-through business investment in 

equipment, structures, and intangibles are lower in 2026 than in 2025. This can be 

explained as follows. First, the sunset of the 20-percent deduction increases the tax 

rate on pass-through business income in 2026. The higher tax rate on pass-through 

business income increases the anticipated PV of the tax benefit of depreciation 

allowances in 2026 (ss + 1) relative to 2025 (ss). In terms of equation (1), 

((ΓΓss+1 − ΓΓss) (1 − ΓΓss ⁄ )) > 0 in 2025. The result is an increase in the user cost of 

capital and the EMTR. 

U.S. Department of the 

Treasury Office of Tax Analysis

October, 2023