scholarly journals Why Do (Some) Ordinary Americans Support Tax Cuts for the Rich? Evidence From a Randomized Survey Experiment

2021 ◽  
Author(s):  
David Hope ◽  
Julian Limberg ◽  
Nina Sophie Weber
Keyword(s):  
Tax Policy ◽  
Reference Points ◽  
Survey Experiment ◽  
Tax Rates ◽  
Policy Reforms ◽  
Tax Rate ◽  
Self Interest ◽  
Federal Income Tax ◽  
The Rich ◽  
Tax Cuts

Why do (some) ordinary citizens support tax cuts for the rich? A prominent explanation in the political economy literature stresses the role of unenlightened self-interest. According to this view, citizens consistently fail to gauge whether they are directly affected by tax policy reforms. We use a randomized survey experiment in the US to identify the drivers of preferences for cutting taxes on the rich. The results show that informing individuals of whether they are directly affected by a cut in the top federal income tax rate has no impact on preferences. We therefore find no support for the unenlightened self-interest explanation. In contrast, we find preferences for taxing the rich are fundamentally affected by information that shifts citizens' core fairness beliefs, as well as information on the past trajectory of top tax rates. Our results therefore align with explanations of tax policy preferences that emphasize the importance of fairness perceptions and reference points.

Integrating Microsimulation Models of Tax Policy into a DGE Macroeconomic Model

2019 ◽  
Vol 47 (2) ◽  
pp. 207-275 ◽  
Author(s):  
Jason DeBacker ◽  
Richard W. Evans ◽  
Kerk L. Phillips
Keyword(s):  
General Equilibrium ◽  
Equilibrium Model ◽  
Tax Policy ◽  
General Equilibrium Model ◽  
Tax Rates ◽  
Tax Reforms ◽  
Macroeconomic Analysis ◽  
The Rich ◽  
Microsimulation Models ◽  
High Degree

This article proposes a method for integrating individual effective tax rates and marginal tax rates computed from a microsimulation (partial equilibrium) model of tax policy with a dynamic general equilibrium model of tax policy that can provide macroeconomic analysis or dynamic scores of tax reforms. Our approach captures the rich heterogeneity, realistic demographics, and tax-code detail of the microsimulation model and allows this detail to inform a general equilibrium model with a relatively high degree of heterogeneity. In addition, we propose a functional form in which tax rates depend jointly on the levels of both capital income and labor income.

scholarly journals THE COST OF DIRECT TAXATION ON INVESTMENT IN BRAZIL

2017 ◽  
Vol 21 (1) ◽  
Author(s):  
Nelson Leitão Paes
Keyword(s):  
Tax Rates ◽  
Marginal Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Direct Taxation ◽  
Economic Profit ◽  
The Rich ◽  
The Cost ◽  
Rich Countries ◽  
The Impact

ABSTRACT This paper analyzed the impact of taxation on the investment in Brazil, focusing on the taxation of corporate income. Following the literature, it was used an economic model to calculate two indicators of effective tax rates - Effective Marginal Tax Rate (EMTR) and Effective Average Tax Rate (EATR). The EMTR measures the increase of the cost of capital due to corporate income tax. The EATR represents a measure of the average tax rate levied on an investment that has a pre-defined economic profit. The results suggest Brazil may face some difficulties to attract foreign investment. The country presents high rates for EATR and EMTR, higher than the average of the rich countries and well above the figures of development countries like Chile, Mexico, South Africa, Russia and China, potential competitors in attracting investments.

Corporate Taxation under Weak Enforcement

2021 ◽  
Vol 13 (4) ◽  
pp. 36-71
Author(s):  
Pierre Bachas ◽  
Mauricio Soto
Keyword(s):  
Developing Countries ◽  
Costa Rica ◽  
Tax Policy ◽  
Corporate Taxation ◽  
Tax Revenue ◽  
Tax Rates ◽  
Corporate Tax ◽  
Tax Rate ◽  
Taxable Profit

How should developing countries tax corporate income? We study this question in Costa Rica, where firms face higher average tax rates on profits when revenues marginally increase. We combine discontinuity and bunching designs to estimate the elasticity of taxable profit and separate it into revenue and cost elasticities. We find that firms faced with a higher tax rate slightly reduce revenues but considerably increase costs, thus producing a large elasticity of taxable profit of 3–5. In this context, the revenue-maximizing rate for a corporate tax on profit is below 25 percent, and we show that a tax policy that broadens the base while lowering the rate can almost double the tax revenue collected from these firms. (JEL D22, H25, H26, H32, K34, L25, O23)

In the Nick of Time: Performance-Based Compensation and Proactive Responses to the Tax Cuts and Jobs Act

2020 ◽  
Author(s):  
Jonathan Durrant ◽  
James Jianxin Gong ◽  
Jennifer K Howard
Keyword(s):  
Stock Option ◽  
Tax Rates ◽  
Tax Rate ◽  
Weak Evidence ◽  
Performance Based Pay ◽  
Performance Based Compensation ◽  
Definition Of ◽  
Jobs Act ◽  
Option Compensation ◽  
Tax Cuts

The Tax Cuts and Jobs Act of 2017 (TCJA) introduced two major changes that may influence executive compensation: (1) reducing corporate tax rates from 35 to 21 percent and (2) eliminating the performance-based pay exception in Section 162(m). These changes provide incentives to maximize deductible compensation expense in 2017, before the TCJA goes into effect. Consistent with our expectation, we find that the increase in CEO bonus and stock option compensation is significantly greater in 2017 relative to prior years. Our difference-in-difference results are consistent with the tax rate reduction driving the bonus increase and the repeal of the performance-based exception leading to the increase in CEO stock options. The TCJA also changed the definition of covered employees to include the CFO. We find weak evidence for abnormal increases in CFO performance-based compensation. Overall, our findings suggest that firms' responded to the TCJA in the period before it was effective.

Measuring “Schmeduling”

2019 ◽  
Vol 87 (5) ◽  
pp. 2399-2438 ◽  
Author(s):  
Alex Rees-Jones ◽  
Dmitry Taubinsky
Keyword(s):  
Income Tax ◽  
Mental Representations ◽  
Tax Rates ◽  
Marginal Tax Rate ◽  
Tax Rate ◽  
Policy Relevance ◽  
Marginal Tax Rates ◽  
Federal Income Tax ◽  
The U.S ◽  
Empirical Framework

Abstract What mental models do individuals use to approximate their tax schedule? Using incentivized forecasts of the U.S. Federal income tax schedule, we estimate the prevalence of the “schmeduling” heuristics for constructing mental representations of nonlinear incentive schemes. We find evidence of widespread reliance on the “ironing” heuristic, which linearizes the tax schedule using one’s average tax rate. In our preferred specification, 43% of the population irons. We find no evidence of reliance on the “spotlighting” heuristic, which linearizes the tax schedule using one’s marginal tax rate. We show that the presence of ironing rationalizes a number of empirical patterns in individuals’ perceptions of tax liability across the income distribution. Furthermore, while our empirical framework accommodates a rich class of other misperceptions, we find that a simple model including only ironers and correct forecasters accurately predicts average underestimation of marginal tax rates. We replicate our finding of prevalent ironing, and a lack of other systematic misperceptions, in a controlled experiment that studies real-stakes decisions across exogenously varied tax schedules. To illustrate the policy relevance of the ironing heuristic, we show that it augments the benefits of progressive taxation in a standard model of earnings choice. We quantify these benefits in a calibrated model of the U.S. tax system.

scholarly journals Income Tax Issues on the Omnibus Law and Its Implications in Indonesia

2021 ◽  
Vol 12 (2) ◽  
pp. 164
Author(s):  
Prianto Budi Saptono ◽  
Cyntia Ayudia
Keyword(s):  
Tax Policy ◽  
Income Tax ◽  
Tax Compliance ◽  
Electronic System ◽  
Tax Rates ◽  
Domestic Investment ◽  
Tax Rate ◽  
Income Tax Policy ◽  
The Government ◽  
Using Data

This research has two objectives. The first objective is to analyze the issue of income tax policy based on the idea of taxation omnibus law. In 2020, Law No. 36 of 2008 concerning Income Tax was amended twice as stipulated in Law No. 2 of 2020 and Law No. 11 of 2020 (Job Creation Law). The second objective is to analyze the implications of income tax policy changes on taxation practices in Indonesia. This research is a descriptive qualitative study using data collection techniques in documentation and literature studies. The research concludes that the omnibus law policy aims to encourage domestic investment funding. Income tax issues in Law No. 2 of 2020 include lowering the corporate income tax rate and imposing taxes on trade through an electronic system. Besides, the issue of income tax in Law No. 11 of 2020 includes tax subjects' determination, the territorial system's adoption, tax objects' exclusion, and changes to the provisions on dividends. The implication of the change in income tax policy on taxation practices is that taxes distort the economy. The delegation of regulations for reducing income tax rates to the government through government regulations creates legal uncertainty. Thus, it is necessary to have tax regulations with minimal complexity, not overlap, provide legal certainty, and further encourage voluntary tax compliance.

How do Reductions in Foreign Country Corporate Tax Rates Affect U.S. Domestic Manufacturing Firms?

2020 ◽  
Author(s):  
Jaewoo Kim ◽  
Michelle L. Nessa ◽  
Ryan J. Wilson
Keyword(s):  
Manufacturing Firms ◽  
Foreign Country ◽  
Investment Strategies ◽  
Tax Rates ◽  
Corporate Tax ◽  
Cross Sectional ◽  
Tax Rate ◽  
Domestic Firms ◽  
The Impact ◽  
Tax Cuts

We examine the effects of increased competition stemming from corporate tax rate cuts in foreign competitors' home countries on U.S. domestic manufacturing firms. We develop a measure of U.S. domestic firms' exposure to changes in foreign country tax rates and validate that the measure captures increased competition in the U.S. We find that on average U.S. domestic firms lose market power following declines in foreign country tax rates. We also find that on average U.S. domestic firms respond by increasing investment in research and development and capital expenditures and by improving total factor productivity. In cross-sectional analyses, we find the impact of foreign tax cuts is concentrated among U.S. domestic firms with low ex ante product differentiation. Taken together, these findings suggest that foreign country tax cuts escalate the competitive threat faced by U.S. domestic firms, and in response U.S. domestic firms alter their investment strategies and/or become more productive.

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