This paper examines the impact of tax policy on corporate financing decisions using a new empirical method and dataset. The study finds clear evidence that non-debt tax shields "crowd out" interest deductibility, reducing the marginal desirability of debt issues. Previous studies that failed to find significant tax effects often examined debt-equity ratios rather than individual, well-specified financing choices. The paper also highlights the importance of controlling for confounding effects, such as asymmetric information, which other papers ignored. The results suggest that firms are less likely to issue debt when their expected tax shield value is lower, as the expected value of interest deductions decreases. The study uses a sample of 1418 observations from new public-issue security registrations with the SEC, covering 613 different firms from 1977 to 1984. The analysis controls for various factors, including risk measures, tangible capital intensity, and industry dummies, to provide robust evidence of the substantial tax effects on financing decisions.This paper examines the impact of tax policy on corporate financing decisions using a new empirical method and dataset. The study finds clear evidence that non-debt tax shields "crowd out" interest deductibility, reducing the marginal desirability of debt issues. Previous studies that failed to find significant tax effects often examined debt-equity ratios rather than individual, well-specified financing choices. The paper also highlights the importance of controlling for confounding effects, such as asymmetric information, which other papers ignored. The results suggest that firms are less likely to issue debt when their expected tax shield value is lower, as the expected value of interest deductions decreases. The study uses a sample of 1418 observations from new public-issue security registrations with the SEC, covering 613 different firms from 1977 to 1984. The analysis controls for various factors, including risk measures, tangible capital intensity, and industry dummies, to provide robust evidence of the substantial tax effects on financing decisions.