{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chap015 - Chapter 15 The Personal Income Tax Chapter 15 The...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 15 – The Personal Income Tax Chapter 15 – The Personal Income Tax 1. The Haig-Simons definition of income is the net change in the individual’s power to consume during a given period. This criterion suggests the inclusion of all sources of potential increases in consumption and also implies that any decreases in an individual’s power to consume should be subtracted in determining income. Overall, it reflects the broadest possible base of income. Allowing capital losses of $5,000 to be deductible against other forms of income, rather than the current $3,000, would move the tax system more in the direction of the Haig-Simons criterion. 2. From a Haig-Simons point of view, the McCain proposal makes sense. According to Haig-Simons, all income should be taxed at the same rate, regardless of the use to which it is to be put. Under the status quo, income (in the form of capital gains) is taxed at a lower rate if it is donated to charity. Note that wage income that is to be donated to charity does not enjoy the same benefit. Under the status quo, the tax price of a gift of appreciated property is 1 - t - tk*g, where t is the marginal tax rate on ordinary income, tk is the tax rate on capital gains, and g is the proportion of the gift that is appreciated property. With the McCain proposal, the tax price would be 1 - t. Thus, the tax price goes up. We expect charitable contributions to go down by an amount that depends on the elasticity of charitable contributions with respect to their tax price. 3. Suppose Jones buys the oil stock for $1,000 at the start of period 0. At the start of period 1, he has two options. a. Hold the oil stock one more period, then sell. b. Sell the oil stock, buy the gold stock and hold it for one period. In both cases, it is assumed that all assets are sold, and any taxes paid at the end of period 2. What are the returns to option a)? At a 10 percent rate of appreciation, the oil stock is worth $1,210 after period 2, the capital gain is $210 and assuming
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern