Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View

This paper is a critical survey and discussion of the recent literature on the tax effects on corporate finance and investment decisions. It corrects a common misinterpretation of the "new" view, emphasizes the cushioning effect of financial optimization, dismisses the view that optimizing firms behave as if they maximized their cost of finance, studies the role of immature firms, questions the alleged support of the old view by the occurrence of share repurchases, comments on the U.S. budget compromise, and suggests the idea of a political Miller equilibrium.