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Imputing Corporate Tax Liabilities to Individual Taxpayers

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  • Martin Feldstein

Abstract

This paper presents a method of studying the distributional consequences of corporate tax changes by imputing to individual tax returns the net effect of changes in effective corporate tax rates. Particular attention is given to the difference between nominal and real capital income, to the problem of corporate pension funds, and to the automatic effect of corporate tax changes on dividends and retained earnings. Application of this imputation method to the tax changes enacted in 1986 shows that the actual distribution of the total tax change was very different from the traditional distribution of only the personal income tax change. The net imputed corporate tax increase was equivalent to a rise of 6 percentage points in the personal income tax among taxpayers with 1988 incomes over $200,000 and 4 percentage points among taxpayers with incomes between $100,000 and $200,000. The corporate income tax increase also added the equivalent of an 8 percent rise in the income tax for taxpayers with incomes between $10,000 and $20,000. By contrast, for middle income taxpayers (with incomes between $30,000 and $75,000) the corporate tax increase was equivalent to an income tax rise of only 1 or 2 percent. The analysis shows that the higher corporate tax represents a particularly large increase for taxpayers over the age of 65; on average, tax returns with at least one taxpayer over age 65 will pay 12 percent more tax under the 1986 tax legislation than they would otherwise have paid. Distributional considerations will continue to play a large role in the public and Congressional discussions of future tax reforms. The present study shows that it is very important to include the distributional consequences of corporate as well as personal tax changes in the analysis of any proposed tax reforms.

Suggested Citation

  • Martin Feldstein, 1987. "Imputing Corporate Tax Liabilities to Individual Taxpayers," NBER Working Papers 2349, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2349 Note: PE
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    1. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
    2. Bradford, David F., 1981. "The incidence and allocation effects of a tax on corporate distributions," Journal of Public Economics, Elsevier, vol. 15(1), pages 1-22, February.
    3. Kotlikoff, Laurence J. & Smith, Daniel E., 1984. "Pensions in the American Economy," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226451466.
    4. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 281-321, November.
    5. Feldstein, Martin S & Slemrod, Joel, 1980. "Personal Taxation, Portfolio Choice, and the Effect of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 854-866, October.
    6. Martin Feldstein, 1983. "Behavioral Simulation Methods in Tax Policy Analysis," NBER Books, National Bureau of Economic Research, Inc, number feld83-2, January.
    7. Joel Slemrod, 1984. "A General Equilibrium Model of Taxation That Uses Micro-Unit Data: Withan Application to the Impact of Instituting a Flat-Rate Income Tax," NBER Working Papers 1461, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Michael P. Devereux & Peter Birch Sørensen, 2006. "The Corporate Income Tax: international trends and options for fundamental reform," European Economy - Economic Papers 2008 - 2015 264, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    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.
    3. Daniel R. Feenberg & Andrew W. Mitrusi & James M. Poterba, 1997. "Distributional Effects of Adopting a National Retail Sales Tax," NBER Chapters,in: Tax Policy and the Economy, Volume 11, pages 49-90 National Bureau of Economic Research, Inc.
    4. Alan J. Auerbach & Joel Slemrod, 1997. "The Economic Effects of the Tax Reform Act of 1986," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 589-632, June.
    5. Gilbert E. Metcalf, 1998. "A Distributional Analysis of an Environmental Tax Shift," Discussion Papers Series, Department of Economics, Tufts University 9801, Department of Economics, Tufts University.
    6. André Decoster & Isabelle Standaert & Christian Valenduc & Guy Van Camp, 2002. "What makes personal income taxes progressive? The case of Belgium," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 45(3), pages 91-112.
    7. Alan J. Auerbach, 2006. "Who Bears the Corporate Tax? A Review of What We Know," NBER Chapters,in: Tax Policy and the Economy, Volume 20, pages 1-40 National Bureau of Economic Research, Inc.
    8. Alan J. Auerbach, 1990. "Public Sector Dynamics," NBER Working Papers 3508, National Bureau of Economic Research, Inc.
    9. John Bishop & K. Chow & John Formby & Chih-Chin Ho, 1997. "Did Tax Reform Reduce Actual US Progressivity? Evidence from the Taxpayer Compliance Measurement Program," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(2), pages 177-197, May.
    10. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," CESifo Working Paper Series 1793, CESifo Group Munich.
    11. Thomas Piketty & Emmanuel Saez, 2007. "How Progressive is the U.S. Federal Tax System? A Historical and International Perspective," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 3-24, Winter.
    12. Martin Feldstein, 1993. "Tax Policy in the 1980s: A Personal View," NBER Working Papers 4323, National Bureau of Economic Research, Inc.

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