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Imputing Corporate Tax Liabilities to Individual Taxpayers

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  • Martin Feldstein

Abstract

This paper presents a method of studying the distributional consequences of corporate tax changes by imputing to individual tax returns the net effect of changes in effective corporate tax rates. Particular attention is given to the difference between nominal and real capital income, to the problem of corporate pension funds, and to the automatic effect of corporate tax changes on dividends and retained earnings. Application of this imputation method to the tax changes enacted in 1986 shows that the actual distribution of the total tax change was very different from the traditional distribution of only the personal income tax change. The net imputed corporate tax increase was equivalent to a rise of 6 percentage points in the personal income tax among taxpayers with 1988 incomes over $200,000 and 4 percentage points among taxpayers with incomes between $100,000 and $200,000. The corporate income tax increase also added the equivalent of an 8 percent rise in the income tax for taxpayers with incomes between $10,000 and $20,000. By contrast, for middle income taxpayers (with incomes between $30,000 and $75,000) the corporate tax increase was equivalent to an income tax rise of only 1 or 2 percent. The analysis shows that the higher corporate tax represents a particularly large increase for taxpayers over the age of 65; on average, tax returns with at least one taxpayer over age 65 will pay 12 percent more tax under the 1986 tax legislation than they would otherwise have paid. Distributional considerations will continue to play a large role in the public and Congressional discussions of future tax reforms. The present study shows that it is very important to include the distributional consequences of corporate as well as personal tax changes in the analysis of any proposed tax reforms.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2349.

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Date of creation: Aug 1987
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Publication status: published as From National Tax Journal, Vol. XLI, No. 1, pp. 37-59, (March 1988).
Handle: RePEc:nbr:nberwo:2349

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  1. Martin Feldstein & Joel Slemrod, 1980. "Personal Taxation, Portfolio Choice and The Effect of the Corporation Income Tax," NBER Working Papers 0241, National Bureau of Economic Research, Inc.
  2. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 70, pages 215.
  3. David F. Bradford, 1979. "The Incidence and Allocation Effects of a Tax on Corporate Distributions," NBER Working Papers 0349, National Bureau of Economic Research, Inc.
  4. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 281-321, November.
  5. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550, 9.
  6. Martin Feldstein, 1983. "Behavioral Simulation Methods in Tax Policy Analysis," NBER Books, National Bureau of Economic Research, Inc, number feld83-2, Ekim.
  7. Laurence J. Kotlikoff & Daniel E. Smith, 1983. "Pensions in the American Economy," NBER Books, National Bureau of Economic Research, Inc, number kotl83-1, Ekim.
  8. Joel Slemrod, 1984. "A General Equilibrium Model of Taxation That Uses Micro-Unit Data: Withan Application to the Impact of Instituting a Flat-Rate Income Tax," NBER Working Papers 1461, National Bureau of Economic Research, Inc.
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Cited by:
  1. Gilbert E. Metcalf, 1998. "A Distributional Analysis of an Environmental Tax Shift," NBER Working Papers 6546, National Bureau of Economic Research, Inc.
  2. Michael P. Devereux & Peter Birch Sørensen, 2006. "The Corporate Income Tax: international trends and options for fundamental reform," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 264, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Martin Feldstein, 1993. "Tax Policy in the 1980s: A Personal View," NBER Working Papers 4323, National Bureau of Economic Research, Inc.
  4. Alan J. Auerbach, 2005. "Who Bears the Corporate Tax? A review of What We Know," NBER Working Papers 11686, National Bureau of Economic Research, Inc.
  5. Thomas Piketty & Emmanuel Saez, 2006. "How Progressive is the U.S. Federal Tax System? A Historical and International Perspective," NBER Working Papers 12404, National Bureau of Economic Research, Inc.
  6. André Decoster & Isabelle Standaert & Christian Valenduc & Guy Van Camp, 2002. "What makes personal income taxes progressive? The case of Belgium," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 45(3), pages 91-112.
  7. Alan J. Auerbach, 1990. "Public Sector Dynamics," NBER Working Papers 3508, National Bureau of Economic Research, Inc.
  8. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," CESifo Working Paper Series 1793, CESifo Group Munich.
  9. John Bishop & K. Chow & John Formby & Chih-Chin Ho, 1997. "Did Tax Reform Reduce Actual US Progressivity? Evidence from the Taxpayer Compliance Measurement Program," International Tax and Public Finance, Springer, vol. 4(2), pages 177-197, May.
  10. Alan J. Auerbach & Joel Slemrod, 1997. "The Economic Effects of the Tax Reform Act of 1986," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 589-632, June.
  11. Daniel R. Feenberg & Andrew W. Mitrusi & James M. Poterba, 1997. "Distributional Effects of Adopting a National Retail Sales Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 11, pages 49-90 National Bureau of Economic Research, Inc.
  12. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 06-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.

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