Mack Ott examines the relation between the value of additions to business capital equipment and plant and the Accelerated Cost Recovery System (ACRS) enacted in 1981. ACRS has been controversial since its enactment because it reduced effective corporate tax rates; it is a central issue in the administration’s current tax reform proposal. Proponents of ACRS have argued that the lowered tax rates on capital income have raised the rate of investment and thus contributed to faster U.S. economic growth, but critics claim that investment actually has been less rapid since ACRS was enacted. Ott finds that ACRS has provided enhanced investment incentives, reduced the bias against long-term investment in commercial and industrial structures and sharply raised investment since the end of the 1981-82 recession. However, he concludes that a major force explaining the recent strong rate of business investment in the United States has been the significant decline in the expected inflation rate. Under either ACRS or prior tax law, the massive decline in inflation would have had a significant positive impact on U.S. investment.