taxableincome

G kennedy tax cuts of early 1960s 4 top income shares

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Unformatted text preview: income shares sometimes do not respond to large tax rate cuts [e.g., Kennedy Tax Cuts of early 1960s] 4) Top income shares can change substantially for non-tax related reasons: (a) Great Depression 1928-1931 (MTR stable and top income shares ↓, (b) 1990s: MTR ↑ and top income shares ↑ 8 FISCAL EXTERNALITIES A Fiscal externality is a change in tax revenue that occurs in any tax base z B other than z due to the behavioral response to the tax change in the initial base z (1) z B can be a different tax base in the same time period (such as corporate income tax base) ⇒ Income shifting (2) z B can be the same tax base in a different time period (such as future income) ⇒ Inter-temporal Substitution Efficiency and optimal tax analysis depend on effect on total tax revenue 9 Inter-Temporal Substitution: Realized Capital Gains Realized capital gains occur when individual sells asset at a higher price than buying price Individuals have flexibility in the timing of asset sales and capital gains realizations TRA’86 lowered the top tax rate on ordinary income from 50% to 28% but increased the top tax rate on realized capital gains from 20% to 28% ⇒ Surge in capital gains realizations in 1986 [and depressed capital gains in 1987] to take advantage of low 20% rate before 28% tax rate applies ⇒ Short-term elastic...
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This note was uploaded on 01/23/2014 for the course ECON 131 taught by Professor Karp during the Spring '07 term at Berkeley.

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