The Impact of Marginal Tax Rates on Taxable Income: Evidence from State Income Tax Differentials

1999 ◽  
Vol 65 (4) ◽  
pp. 855-869
Author(s):  
James E. Long
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Taxable Income ◽  
State Income Tax ◽  
Marginal Tax Rates ◽  
State Income ◽  
The Impact

scholarly journals The Incentive Effects of Marginal Tax Rates: Evidence from the Interwar Era

2014 ◽  
Vol 6 (3) ◽  
pp. 242-281 ◽  
Author(s):  
Christina D. Romer ◽  
David H. Romer
Keyword(s):  
Time Series ◽  
Income Tax ◽  
Positive Impact ◽  
Tax Rates ◽  
Marginal Rate ◽  
Taxable Income ◽  
Incentive Effects ◽  
Marginal Tax Rates ◽  
The Impact ◽  
Section Analysis

This paper uses the interwar United States as a laboratory for investigating the incentive effects of marginal income tax rates. We examine the impact of the large changes in rates in this period on taxable income using time-series/cross-section analysis of data by small slices of the income distribution. We find that the effect operated in the expected direction but was economically small, and that it is precisely estimated and highly robust. We also find suggestive time-series evidence of a positive impact of marginal rate cuts on business formation, but no evidence of an important effect on other indicators of investment. (JEL D31, H24, H31, M13, N42)

scholarly journals THE IMPACT OF TAX POLICY ON ECONOMIC GROWTH, INCOME DISTRIBUTION, AND ALLOCATION OF TAXES

2006 ◽  
Vol 23 (2) ◽  
pp. 28-52 ◽  
Author(s):  
James D. Gwartney ◽  
Robert A. Lawson
Keyword(s):  
Economic Growth ◽  
Income Distribution ◽  
Income Tax ◽  
Tax Rates ◽  
Personal Income Tax ◽  
Income Groups ◽  
Marginal Tax Rates ◽  
Tax Changes ◽  
The Impact ◽  
Distribution Of Income

Using a sample of seventy-seven countries, this paper focuses on marginal tax rates and the income thresholds at which they apply to examine how the tax changes of the 1980s and 1990s have influenced economic growth, the distribution of income, and the share of taxes paid by various income groups. Many countries substantially reduced their highest marginal rates during the 1985-1995 period. The findings indicate that countries that reduced their highest marginal rates grew more rapidly than those that maintained high marginal rates. At the same time, the income distribution in several of the tax cutting countries became more unequal while there was little change or even a reduction in income inequality in most countries that maintained high marginal rates. Finally, the evidence suggests that there was a shift in the payment of the personal income tax away from those with low and middle incomes and toward those with the highest incomes.

scholarly journals The Impact of Federal and State Income Tax Liabilities on Timber Investments in the Midwest and Northeast

2007 ◽  
Vol 24 (4) ◽  
pp. 245-251 ◽  
Author(s):  
Nathan R. Smith ◽  
Philip Bailey ◽  
Harry Haney ◽  
Debra Salbador ◽  
John Greene
Keyword(s):  
Income Tax ◽  
Tax Planning ◽  
Income Taxes ◽  
Forest Landowners ◽  
Middle Income ◽  
State Tax ◽  
State Income Tax ◽  
State Income ◽  
Lower Peninsula ◽  
The Impact

Abstract Federal and state income taxes are calculated for hypothetical forest landowners in two income brackets across 23 states in the Midwest and Northeast to illustrate the effects of differential state tax treatment. The income tax liability is calculated in a year in which the timber owners harvest $200,000 worth of timber. State income taxes ranged from highs of $13,427 for middle-income landowners and $18,527 for high-income landowners in Maine to no tax burden in New Hampshire and South Dakota. Calculated state and federal income taxes are based on 2004 tax regulations and rates. After-tax land expectation values calculated for a forest landowner in the Northern Lower Peninsula of Michigan illustrate the importance of tax planning on returns to a timber investment. The results support the need for adequate tax accounting.

scholarly journals The Impact of Federal and State Income Tax Liabilities on Timber Investments in the West

2008 ◽  
Vol 23 (2) ◽  
pp. 121-126
Author(s):  
Nathan R. Smith ◽  
Phillip Bailey ◽  
Harry Haney ◽  
Debra Salbador ◽  
John Greene
Keyword(s):  
Income Tax ◽  
Tax Planning ◽  
Income Taxes ◽  
The West ◽  
Forest Landowners ◽  
Middle Income ◽  
State Tax ◽  
State Income Tax ◽  
State Income ◽  
The Impact

Abstract Federal and state income taxes are calculated for hypothetical forest landowners in two income brackets across 13 states in the West to illustrate the effects of differential state tax treatment. The income tax liability is calculated in a year in which the timber owners harvest $200,000 worth of timber. State income taxes range from highs of $19,693 for middle-income and $34,993 for high-income landowners in Oregon to no income tax in Alaska, Nevada, Washington and Wyoming. After-tax land expectation values for a forest landowner in Oregon are also calculated to illustrate the importance of tax planning on returns to a timber investment. The need for adequate tax accounting is supported by the results.

Measuring Revenue-maximizing Elasticities of Taxable Income

2016 ◽  
Vol 45 (2) ◽  
pp. 174-204 ◽  
Author(s):  
John Creedy ◽  
Norman Gemmell
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Marginal Rate ◽  
Tax System ◽  
Tax Rate ◽  
Taxable Income ◽  
Wide Range ◽  
The Us ◽  
Marginal Tax Rates ◽  
The Right

This article considers the question of whether marginal tax rates (MTRs) in the US income tax system are on the “right” side of their respective Laffer curves. Previous attention has tended to focus specifically on the top MTR. Conceptual expressions for these “revenue-maximizing elasticities of taxable income” (ETI L), based on readily observable tax parameters, are presented for each tax rate in a multi-rate income tax system. Applying these to the US income tax, with its complex effective marginal rate structure, demonstrates that a wide range of revenue-maximizing ETI values can be expected within, and across, tax brackets and for all taxpayers in aggregate. For some significant groups of taxpayers, these revenue-maximizing ETIs appear to be within the range of empirically estimated elasticities.

The Impact of the Source of Changes in Marginal Tax Rates on Participation in Individual Retirement Accounts

2002 ◽  
Vol 24 (1) ◽  
pp. 46-59 ◽  
Author(s):  
David H. Eaton
Keyword(s):  
Fixed Effects ◽  
Tax Reform ◽  
Tax Rates ◽  
Tax Rate ◽  
Taxable Income ◽  
Individual Retirement Accounts ◽  
Retirement Accounts ◽  
Marginal Tax Rates ◽  
The Impact ◽  
Participation Decisions

This paper uses a series of two-year panels of tax return data to estimate the effects of two sources of tax rate changes on the participation in Individual Retirement Accounts (IRAs). This paper uses a panel logit approach to control for individual specific fixed effects, which may also influence IRA participation behavior. This paper examines participation during the years of open eligibility for IRAs, as well as examining the impact of the 1986 tax reform on participation. A key finding of this paper is that taxpayers' IRA participation decisions are more sensitive to changes in tax rates due to changes in taxable income than to direct changes in the tax tables.

scholarly journals Measuring the impact of marginal tax rate reform on the revenue base of South Africa using a microsimulation tax model

2015 ◽  
Vol 18 (3) ◽  
pp. 380-394 ◽  
Author(s):  
Yolande Jordaan ◽  
Nicholaas J Schoeman
Keyword(s):  
Economic Growth ◽  
Tax Reform ◽  
Fiscal Year ◽  
Optimum Level ◽  
Tax Rates ◽  
Strong Response ◽  
Taxable Income ◽  
Marginal Tax Rates ◽  
Tax Efficiency ◽  
The Impact

This paper is primarily concerned with the revenue and tax efficiency effects of adjustments to marginal tax rates on individual income as an instrument of possible tax reform. The hypothesis is that changes to marginal rates affect not only the revenue base, but also tax efficiency and the optimum level of taxes that supports economic growth. Using an optimal revenue-maximising rate (based on Laffer analysis), the elasticity of taxable income is derived with respect to marginal tax rates for each taxable-income category. These elasticities are then used to quantify the impact of changes in marginal rates on the revenue base and tax efficiency using a microsimulation (MS) tax model. In this first paper on the research results, much attention is paid to the structure of the model and the way in which the database has been compiled. The model allows for the dissemination of individual taxpayers by income groups, gender, educational level, age group, etc. Simulations include a scenario with higher marginal rates which is also more progressive (as in the 1998/1999 fiscal year), in which case tax revenue increases but the increase is overshadowed by a more than proportional decrease in tax efficiency as measured by its deadweight loss. On the other hand, a lowering of marginal rates (to bring South Africa’s marginal rates more in line with those of its peers) improves tax efficiency but also results in a substantial revenue loss. The estimated optimal individual tax to gross domestic product (GDP) ratio in order to maximise economic growth (6.7 per cent) shows a strong response to changes in marginal rates, and the results from this research indicate that a lowering of marginal rates would also move the actual ratio closer to its optimum level. Thus, the trade-off between revenue collected and tax efficiency should be carefully monitored when personal income tax reform is being considered.

scholarly journals Timing Contributions To State Educational Savings Plans

2011 ◽  
Vol 20 (3) ◽  
Author(s):  
Kemper W. Moreland
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Font Size ◽  
Rates Of Return ◽  
Tax Subsidy ◽  
Time Horizons ◽  
State Tax ◽  
State Income Tax ◽  
State Income ◽  
State Educational

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">State educational savings plans have become increasingly popular with families saving for college because contributions grow tax free.<span style="mso-spacerun: yes;">&nbsp; </span>Many states also allow contributions to be deducted under the state income tax but with an annual limit.<span style="mso-spacerun: yes;">&nbsp; </span>This state tax subsidy creates a dilemma for moderately wealthy investors:<span style="mso-spacerun: yes;">&nbsp; </span>contribute a large sum now or limit this year&rsquo;s contribution to free funds for future annual deductions?<span style="mso-spacerun: yes;">&nbsp; </span>This study calculates how tax rates, time horizons, and rates of return determine one&rsquo;s choice.</span></span></p>

Accounting for Tax Benefits of Employee Stock Options and Implications for Research

2002 ◽  
Vol 16 (1) ◽  
pp. 1-16 ◽  
Author(s):  
Michelle Hanlon ◽  
Terry Shevlin
Keyword(s):  
Income Tax ◽  
Stock Options ◽  
Employee Stock Options ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Marginal Tax Rates ◽  
Tax Benefits ◽  
The Impact ◽  
Tax Expense ◽  
Reported Income

This paper examines how firms account for and report the tax benefits of employee stock options (ESOs). The tax benefits of ESOs reduce taxes actually owed but enter stockholders' equity directly without reducing reported income tax expense. Failing to adjust reported income tax expense for this benefit can lead to poorly specified studies with the distinct possibility of considerable measurement error and flawed inferences. We explain the adjustments needed for more reliable estimates of effective tax rates, tax burdens, and marginal tax rates often critical to analyses of firm-specific and public policy issues. We document problems with firms' disclosures and, using a sample of large NASDAQ firms likely to be heavy users of ESOs, find that adjusting for the ESO tax benefit is essential to understanding the impact of taxes on those firms.

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