NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Susan Guthrie

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June 2008U.S. Defense Contracts During the Tax Expenditure Battles of the 1980s
with James R. Hines, Jr.: w14146
This paper considers the impact of the tax treatment of U.S. military contractors. Prior to the early 1980s, taxpayers were permitted to use the completed contract method of accounting to defer taxation of profits earned on long term contracts. Legislation passed in 1982, 1986 and 1987 required that at least 70 percent of the profits earned on long-term contracts be taxed as accrued, thereby significantly reducing the tax benefits associated with long term contracting. Comparing contracts that were ineligible for the tax benefits associated with long term contracting with those that were eligible, it appears that between 1981 and 1989 the duration of U.S. Department of Defense contracts shortened by an average of between one and 3.5 months, or somewhere between 6 and 29 percent of avera...

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