The current tax base differs from a consumption tax both because the opportunity cost of capital is taxed and because of differential capital taxation, so we compared four different tax regimes: 1 a comprehensive income tax with uniform capital income taxation; 2 a stylized version of the current income tax base capturing the principle features of differential capital taxation; 3 a broad-based consumption tax under the assumption that the burden of the consumption tax falls on wages;16 and 4 a broad-based consumption tax under which the tax base includes inframarginal returns and returns to risk taking but excludes the opportunity cost of capital from the tax base. We have modeled provisions of U. Finally, we would like to thank John Diamond and Craig Johnson for help with a wide variety of tasks associated with the conference and the volume, and especially Elisabeth Gugl, whose cheerful yet painstaking editorial assistance was absolutely critical to the preparation of the book. Instead, for the purposes of U. As I have argued, the truth in this argument can principally be traced to reductions in income tax rates and capital gains tax rates made possible by income tax reform. This is a useful and emerging area for research.
Quigley and Smolensky, Modern Public Finance Slemrod, Does Atlas Shrug? Income effects appear in these implicit supply functions via budget constraints and the functional forms of preference functions. As capital expands and the rate of return falls, capital probably shifts back into the less durable assets, thereby lowering gross output from reallocation. President Jimmy Carter The income tax has made more liars out of the American people than golf has. Investment Price -25 -30 80 2020 2015 Year 2010 2005 2000 1996 0. We represent the preferences of each household by means of an econometric model of consumer behavior. .
It is expected that revenue losses from tariff reduction will be compensated by value-added tax revenues. Corrections All material on this site has been provided by the respective publishers and authors. Selected items, including all of the references cited above, are also on reserve in Fondren Library. Instead, I argue that many of these consequences could be obtained with reform of the income tax. Chapter 5 International Aspects of Fundamental Tax Reform Charles L. Hence abstracting from the tax on old capital does not affect the difference in the distribution of taxes paid under the two depictions. By contrast the low initial rate of the consumption tax results in a decline in the consumption price after tax reform.
Wilcoxen of consumption over time. Salient features of this new tax system. Anticipating these developments, the household sector substitutes away from present consumption toward future consumption, as well as from present leisure to future leisure. Accordingly, the volume should serve as a comprehensive guide to the ongoing tax reform debate that will be helpful to both tax policy makers and the general electorate. An important feature of this model is that systems of individual demand functions can be recovered from the system of aggregate demand functions. Zodrow Discussion by Leonard E. Not surprisingly, many of the recent proposals for tax reform include dramatic changes in the tax treatment of income earned abroad.
Such contractions could cause general economy-wide disruption. Nevertheless, the results of Feldstein and Bacchetta are still consistent with a substantial degree of international capital immobility. In the long run, however, adjustments in exchange rates are likely to offset this disadvantage. The combined effective tax rate is equal to the foreign tax rate, tH. Jorgensen and Wilcoxen also assume a relatively high value of 1 for the intertemporal elasticity of substitution in their model, 5 Their model can thus not be used to analyze the intergenerational redistributive effects of reform. Introducing risk adds two complications.
Gravelle There are some legitimate reasons why the full stock market price reduction would not occur. The output effects are delayed, but there is no long-run effect. Treasury would no longer be concerned with the timing of repatriations, and the Subpart F rules would no longer be necessary. Indeed, a fall in the stock market should precede the behavioral response that ultimately leads to an expansion of investment. The system of aggregate demand functions allocates total expenditure to broad groups of consumer goods and services. The book will serve as a comprehensive guide to the ongoing tax reform debate to tax policy makers, scholars, and the general electorate.
This book contains essays written by internationally recognized tax experts who describe the current state in economic thinking on the issue of whether fundamental tax reform is preferable to continued incremental reform of the existing income tax. Jorgenson and Yun 1990, 1991a have employed the results in analyzing the impact of the Tax Reform Act of 1986. In particular, consumption tax proponents would be wise to follow the lead of the successful Tax Reform Act of 1986 and attempt to structure their proposals to minimize reform-induced redistributions of income, forced reductions in government spending, and reforms of the Social Security system. Some limited consumption tax aspects are also in the Auerbach et al. The present value of the loss to the investor and, conversely, the gain to the government depends on how the tax savings from depreciation allowances should be discounted. Capital Income Taxation in Tax Reform 91 1. Capital Income Taxation in Tax Reform 95 expected returns because one project is riskier than the other.
The savings rate elasticity was 0. Michael Stimmelmayr analyzes the outcome and especially the efficiency gains of capital income tax reforms which is, however, an intricate task. In the longer run a higher level of economic activity is generated by a higher rate of capital formation under the sales tax. Consumption 2012 2014 2016 2018 2020 76 90. Other reform-induced factors, however, would also affect asset prices, most acting to offset such a windfall loss.