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Do We Now Collect Any Revenue From Taxing Capital Income?

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  • Roger H. Gordon
  • Laura Kalambokidis
  • Joel Slemrod

Abstract

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9477.

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Date of creation: Feb 2003
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Publication status: published as Gordon, Roger, Laura Kalambokidis and Joel Slemrod. "Do We Now Collect Any Revenue From Taxing Capital Income?," Journal of Public Economics, 2004, v88(5,Apr), 981-1009.
Handle: RePEc:nbr:nberwo:9477

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  1. William M. Gentry & R. Glenn Hubbard, 1997. "Distributional Implications of Introducing a Broad-Based Consumption Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 11, pages 1-48 National Bureau of Economic Research, Inc.
  2. Michael Devereux & Rachel Griffith, 1998. "The taxation of discrete investment choices," IFS Working Papers W98/16, Institute for Fiscal Studies.
  3. Alan J. Auerbach & James R. Hines Jr., 1986. "Anticipated Tax Changes and the Timing of Investment," NBER Working Papers 1886, National Bureau of Economic Research, Inc.
  4. Bond, Stephen R & Devereux, Michael P & Gammie, Malcolm J, 1996. "Tax Reform to Promote Investment," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 109-17, Summer.
  5. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
  6. Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
  7. Roger Gordon & Laura Kalambokidis & Joel Slemrod, 2003. "A New Summary Measure of the Effective Tax Rate on Investment," NBER Working Papers 9535, National Bureau of Economic Research, Inc.
  8. Slemrod, Joel, 1997. "Deconstructing the Income Tax," American Economic Review, American Economic Association, vol. 87(2), pages 151-55, May.
  9. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June.
  10. Alan J. Auerbach & Roger H. Gordon, 2002. "Taxation of Financial Services under a VAT," American Economic Review, American Economic Association, vol. 92(2), pages 411-416, May.
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Cited by:
  1. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 791-833, August.
  2. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers 0715, Oxford University Centre for Business Taxation.
  3. Alan J. Auerbach & Michael P. Devereux & Helen Simpson, 2008. "Taxing Corporate Income," NBER Working Papers 14494, National Bureau of Economic Research, Inc.
  4. Cronin, Julie Anne & Lin, Emily Y. & Power, Laura & Cooper, Michael, 2013. "Distributing The Corporate Income Tax: Revised U.S. Treasury Methodology," National Tax Journal, National Tax Association, vol. 66(1), pages 239-62, March.
  5. Bird, Richard M. & Zolt, Eric M., 2011. "Dual Income Taxation: A Promising Path to Tax Reform for Developing Countries," World Development, Elsevier, vol. 39(10), pages 1691-1703.
  6. Peter A. Schmid, 2013. "The destabilizing effect of company income taxation," Society and Economy, Akadémiai Kiadó, Hungary, vol. 35(3), pages 365-388, September.
  7. Michael Devereux, 2003. "Measuring taxes on income from capital," IFS Working Papers W03/04, Institute for Fiscal Studies.
  8. Roger Gordon & Laura Kalambokidis & Jeffrey Rohaly & Joel Slemrod, 2004. "Toward a Consumption Tax, and Beyond," American Economic Review, American Economic Association, vol. 94(2), pages 161-165, May.
  9. Gordon, Roger & Li, Wei, 2009. "Tax structures in developing countries: Many puzzles and a possible explanation," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 855-866, August.
  10. Johannes Becker & Clemens Fuest, 2005. "Wie viel Aufkommen kostet die Einführung eines Konsumsteuersystems? Weniger als 1% des BIP," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 58(03), pages 23-25, 02.
  11. Zhang, Jie & Davies, James & Zeng, Jinli & McDonald, Stuart, 2008. "Optimal taxation in a growth model with public consumption and home production," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 885-896, April.
  12. Bei Li & Jie Zhang, 2011. "Subsidies in an Economy with Endogenous Cycles Over Neoclassical Investment and Neo-Schumpeterian Innovation Regimes," Economics Discussion / Working Papers 11-23, The University of Western Australia, Department of Economics.
  13. Roger Gordon & Laura Kalambokidis & Joel Slemrod, 2003. "A New Summary Measure of the Effective Tax Rate on Investment," NBER Working Papers 9535, National Bureau of Economic Research, Inc.
  14. Ganghof, Steffen, 2006. "The politics of tax structure," MPIfG Working Paper 06/1, Max Planck Institute for the Study of Societies.
  15. Alan J. Auerbach, 2006. "The Future of Capital Income Taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 27(4), pages 399-420, December.
  16. 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.
  17. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," CESifo Working Paper Series 1793, CESifo Group Munich.

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