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Generalized Cash Flow Taxation

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Author Info
Alan A. Auerbach
David F. Bradford

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Abstract

We show the unique form that must be taken by a tax system based entirely on realization accounting to implement a uniform capital income tax, or, equivalently, a uniform wealth tax. This system combines elements of an accrual based capital income tax and a traditional cash flow tax, having many of the attributes of the latter while still imposing a tax burden on marginal capital income. Like the traditional cash flow tax, this system may be integrated with a tax on labor income. We also show how such a tax can be supplemented with an optional accounting for a segregated subset of actively traded securities, subjected separately to mark-to-market taxation at the uniform capital income tax rate, to permit a fully graduated tax system applicable to labor income.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8122.

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Date of creation: Feb 2001
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Handle: RePEc:nbr:nberwo:8122

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Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alan J. Auerbach, 1991. "Retrospective Capital Gains Taxation," NBER Working Papers 2792, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. William Vickrey, 1934. "Averaging of Income for Income-Tax Purposes," Journal of Political Economy, University of Chicago Press, vol. 47, pages 379. [Downloadable!] (restricted)
  3. Konrad, K.A., 1991. "Risk Taking And Taxation In Complete Capital Markets," Papers 90-91-20, California Irvine - School of Social Sciences.
    Other versions:
  4. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February. [Downloadable!] (restricted)
  5. Sandmo, Agnar, 1985. "The effects of taxation on savings and risk taking," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 5, pages 265-311 Elsevier. [Downloadable!] (restricted)
  6. Kaplow, Louis, 1996. "On the Divergence between "Ideal" and Conventional Income-Tax Treatment of Human Capital," American Economic Review, American Economic Association, vol. 86(2), pages 347-52, May. [Downloadable!] (restricted)
  7. Louis Kaplow, 1995. "Taxation and Risk Taking: A General Equilibrium Perspective," NBER Working Papers 3709, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Gordon, Roger H, 1985. "Taxation of Corporate Capital Income: Tax Revenues versus Tax Distortions," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 1-27, February.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dirk Schindler & Bodo Hilgers, 2002. "Shall We Tax the Risk Premium?," CoFE Discussion Paper 02-17, Center of Finance and Econometrics, University of Konstanz. [Downloadable!]
  2. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," EPRU Working Paper Series 06-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  3. Francesco Menoncin & Paolo Panteghini, 2009. "Retrospective Capital Gains Taxation in the Real World," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers 0715, Oxford University Centre for Business Taxation. [Downloadable!]
  5. Peter Sørensen, 2005. "Neutral Taxation of Shareholder Income," International Tax and Public Finance, Springer, vol. 12(6), pages 777-801, November. [Downloadable!] (restricted)
  6. Syed Ahsan & Panagiotis Tsigaris, 2003. "Choice of Tax Base Revisited: Cash Flow vs. Prepayment Approaches to Consumption Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  7. David F. Bradford, 2003. "Addressing the Transfer-Pricing Problem in an Origin-Basis X Tax," NBER Working Papers 9843, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  9. Peter Birch Sørensen, 2003. "Neutral Taxation of Shareholder Income: A Norwegian Tax Reform Proposal," EPRU Working Paper Series 03-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  10. Peter Birch Sørensen, 2005. "Dual Income Taxation: Why and How?," EPRU Working Paper Series 05-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  11. Peter Birch Sørensen, 2005. "Dual Income Taxation: Why and how?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. Peter Birch Sorensen, 2003. "Neutral Taxation of Shareholder Income: A Norwegian Tax Reform Proposal," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  13. Bjarne Jensen, 2009. "Valuation before and after tax in the discrete time, finite state no arbitrage model," Annals of Finance, Springer, vol. 5(1), pages 91-123, January. [Downloadable!] (restricted)
  14. Alan J. Auerbach, 2006. "The Choice Between Income and Consumption Taxes: A Primer," NBER Working Papers 12307, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. David F. Bradford, 2004. "The X Tax in the World Economy," NBER Working Papers 10676, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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