The Effect of Changes in the Tax Structure on the Reported Income of High-Income Individuals
Tax incidence theory shows how taxes initially placed on one group can be shifted and ultimately borne by others. This paper shows that income of high-income taxpayers is affected both by the rates they face and by the rates faced by non-high-income taxpayers. The income of high-income taxpayers rises when they face lower tax rates, but also rises in response to lower tax rates imposed on non-high-income taxpayers. While high-income responses to own statutory tax changes may be explained-at least partially---by their making a "smart use of the tax code," high-income responses to tax changes on non-high income individuals indicate the presence of structural effects of tax changes.
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