Steven M. Fazzari analyzes the effect of recent changes in corporate and personal taxation on the economic efficiency of the U.S. capital stock. Because investment imposes costs on the economy as well as generates benefits, Fazzari shows that investment reductions caused by tax reform are not necessarily bad for the economy. To the extent that tax reform removes special investment subsidies in the old tax law, it could enhance the efficiency of the capital stock. After studying the implementation of recent tax changes and their effect on the cost of capital, Fazzari concludes that some aspects of tax reform removed special investment subsidies and, thus, by themselves, could enhance the efficiency of U.S. capital formation. When all the changes due to tax reform are considered together, however, the author shows that the overall impact may reduce capital spending below the economically efficient level.