The U.S. income tax has long been recognized as a hybrid of an income and consumption tax, with elements that do not fit naturally into either pure system. The precise nature of this hybrid has important policy implications for, among other things, understanding the impact of moving closer to a pure consumption tax regime. In this paper, we examine the nature of the U.S. income tax by calculating the revenue and distributional implications of switching from the current system to one form of consumption tax, a modified cash flow tax. Although earlier work had suggested that in 1983 such a switch would have cost little or no revenue at all, we calculate that in 1995 this switch would have cost $108.1 billion in tax revenues, suggesting that the U.S. income tax does impose some positive tax on capital income. The net gains from such a switch have a U-shaped pattern, with those in the lowest and highest deciles of labor income receiving the largest proportional gains, although those in the highest decile would have by far the largest absolute gains.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9477.
Length: Date of creation: Feb 2003 Date of revision: Handle: RePEc:nbr:nberwo:9477
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Alan J. Auerbach & Michael P. Devereux & Helen Simpson, 2008.
"Taxing Corporate Income,"
NBER Working Papers
14494, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Alan Auerbach & Michael P Devereux & Helen Simpson, 2007.
"Taxing corporate income,"
Working Papers
0705, Oxford University Centre for Business Taxation.
[Downloadable!]