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Economic Effects of the 2003 Partial Integration Proposal in the United States

  • R. Hubbard

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    On January 7, 2003, President George W. Bush proposed a significant change in capital income taxation in the United States. In the context of a “jobs and growth” package, the President proposed to reduce substantially the double taxation of corporate-source income by eliminating investor-level taxes on dividends paid from earnings on which corporate tax had been paid. In addition, the President’s proposal would have reduced the tax on retained earnings by allowing a basis adjustment for accumulated previously taxed retained earnings. Taken together, these proposals would have moved the U.S. income tax much closer to an integrated tax system along the lines outlined by the Treasury Department in President George H.W. Bush’s administration a decade earlier. Putting together the impacts of the President’s proposal on economic activity through greater capital accumulation and improved calculation, I estimate that the proposal, if it had been enacted in its original form, would yield a permanent increase of 0.48 percent in the U.S. economy’s potential output. This estimated gain does not include any gains made possible by improved corporate financial policy. Copyright Springer Science + Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s10797-005-6398-9
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    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 12 (2005)
    Issue (Month): 1 (January)
    Pages: 97-108

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    Handle: RePEc:kap:itaxpf:v:12:y:2005:i:1:p:97-108
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915

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    1. Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1984. "Informational Imperfections in the Capital Market and Macro-Economic Fluctuations," NBER Working Papers 1335, National Bureau of Economic Research, Inc.
    2. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    3. Cummins, Jason G. & Hassett, Kevin A. & Hubbard, R. Glenn, 1996. "Tax reforms and investment: A cross-country comparison," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 237-273, October.
    4. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
    5. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-51, September.
    6. Jane G. Gravelle & Laurence J. Kotlikoff, 1987. "The Incidence and Efficiency Costs of Corporate Taxation when Corporate and Noncorporate Firms Produce the Same Good," NBER Working Papers 2462, National Bureau of Economic Research, Inc.
    7. R. Glenn Hubbard, 1993. "Corporate Tax Integration: A View from the Treasury Department," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 115-132, Winter.
    8. Zodrow, George R., 1991. "On the 'Traditional' and 'New' Views of Dividend Taxation," National Tax Journal, National Tax Association, vol. 44(4), pages 497-509, December.
    9. Hubbard, R Glenn, 1997. "How Different Are Income and Consumption Taxes?," American Economic Review, American Economic Association, vol. 87(2), pages 138-42, May.
    10. Reuven Avi-Yonah, 2005. "The Pitfalls of International Integration: A Comment on the Bush Proposal and its Aftermath," International Tax and Public Finance, Springer, vol. 12(1), pages 87-95, January.
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