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

Info iconThis preview shows page 1. Sign up to view the full content.

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

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...
View Full Document

This note was uploaded on 01/23/2014 for the course ECON 131 taught by Professor Karp during the Spring '07 term at Berkeley.

Ask a homework question - tutors are online