An Analysis of the Impact of Recent Social Security Legislation on Marginal Tax Rates

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.

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The National Commission On Fiscal Responsibility And Reform: How Its Report Can Impact Marginal Tax Rates

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v9i6.4376 ◽

2011 ◽

Vol 9 (6) ◽

pp. 25

Author(s):

Steven R. Ferraro ◽

Richard W. Powell

Keyword(s):

Social Security ◽

The United States ◽

United States Government ◽

National Commission ◽

Tax Rates ◽

Partial Loss ◽

Fiscal Responsibility ◽

Lump Sum ◽

Marginal Tax Rates ◽

Social Security Benefits

The United States government has a serious budget problem. In 2010 President Barack Obama created the National Commission on Fiscal Responsibility and Reform to deal with the problem by identifying policies to improve the fiscal situation. Among the Commissions recommendations was a proposal to modify payments under Social Security. For most recipients, the modifications would decrease Social Security benefits although benefits would increase for the poorest quintile of recipients. The purpose of this paper is to construct a model for evaluating the proposed shift in Social Security payments. From the perspective of Social Security recipients, the model shows the cutbacks as the partial loss of an annuity stream, as the loss of a lump sum that is capable of generating the partial annuity stream, and as a tax increase for the remainder of the recipients working years as they deposit a special tax into a retirement account designed to replace the lost benefits.

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

Journal of the American Taxation Association ◽

10.2308/jata.2002.24.1.46 ◽

2002 ◽

Vol 24 (1) ◽

pp. 46-59 ◽

Cited By ~ 4

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.

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From the Keynesian to the Supply-Side Revolution

The Economics of Government ◽

10.1093/oso/9780198866428.003.0004 ◽

2020 ◽

pp. 51-63

Author(s):

Vito Tanzi

Keyword(s):

Great Depression ◽

Labor Unions ◽

Rational Expectations ◽

Welfare States ◽

Supply Side ◽

Tax Rates ◽

Laffer Curve ◽

The Great Depression ◽

Marginal Tax Rates ◽

The Impact

This chapter considers the impact of the Great Depression, Keynes’ countercyclical policies, and the Keynesian Revolution. It also looks at the growth of welfare states and of taxes, increasing levels of marginal tax rates and the increasing power of labor unions. This chapter deals with the beginnings of a conservative counter-revolution. New theories, such as growing influence of. the Ricardian Equivalence Hypothesis, Rational Expectations theory, and the Laffer Curve were having a growing influence. Several countries experienced stagflation in the late 1970s. The 1970s included the rise of conservative politicians the arrival of the supply-side revolution and an attempted return to some laissez faire policies. This in turn led to attacks on regulations and on high marginal tax rates. Finally, the chapter heralds the growth of globalization.

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

South African Journal of Economic and Management Sciences ◽

10.4102/sajems.v18i3.795 ◽

2015 ◽

Vol 18 (3) ◽

pp. 380-394 ◽

Cited By ~ 2

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.

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

American Economic Journal Economic Policy ◽

10.1257/pol.6.3.242 ◽

2014 ◽

Vol 6 (3) ◽

pp. 242-281 ◽

Cited By ~ 10

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)

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

Accounting Horizons ◽

10.2308/acch.2002.16.1.1 ◽

2002 ◽

Vol 16 (1) ◽

pp. 1-16 ◽

Cited By ~ 90

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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