Tax Policy Lessons from the 2000s

Overview

The American tax system stands at a crossroads. In addition to longstanding arguments over the tax code and budget deficits, there are new concerns raised by Washington's expensive plan to repair the troubled economy, proposals to address global warming, and the scheduled expiration of the 2001 and 2003 tax cuts at the end of 2010. As they make pivotal decisions on these issues, what lessons can the Obama administration and the new Congress draw from analysis of past experience? Tax Policy Lessons from the 2000s ...

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Overview

The American tax system stands at a crossroads. In addition to longstanding arguments over the tax code and budget deficits, there are new concerns raised by Washington's expensive plan to repair the troubled economy, proposals to address global warming, and the scheduled expiration of the 2001 and 2003 tax cuts at the end of 2010. As they make pivotal decisions on these issues, what lessons can the Obama administration and the new Congress draw from analysis of past experience? Tax Policy Lessons from the 2000s brings together the most up-to-date research available on tax policy with trenchant analysis by America's leading economists. The authors explore the role taxes should play in setting environmental policy; the effect of tax rate increases on labor supply and reported taxable income; the economic impact of deficit-financed tax reductions; and the effect of the tax system on businesses' financial and investment decisions. During the 2000s, economists gained many valuable insights about how taxes affect economic behavior. Drawing on a decade's worth of theoretical models, statistical studies, and observations, the authors provide a map of the progress that has been made and the work that is yet to be done. This volume is an invaluable guide for policymakers facing important decisions about environmental taxation, marginal tax rates, dividend taxation, and the taxation of business investment.

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Product Details

  • ISBN-13: 9780844742786
  • Publisher: Aei Press
  • Publication date: 2/16/2009
  • Pages: 83
  • Sales rank: 1,446,045
  • Product dimensions: 6.00 (w) x 8.90 (h) x 1.00 (d)

Meet the Author

Alan D. Viard is a resident scholar at the American Enterprise Institute.

Alan D. Viard is a resident scholar at the American Enterprise Institute.

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Table of Contents

List Of Illustrations xi

Introduction Alan D. Viard 1

1 Environmental Taxation: What Have We Learned In This Decade? Gilbert E. Metcalf 7

The U.S. Experience with Environmental Taxes 8

Advances in the Theory 13

Efficiency Considerations of Environmental Taxation 13

Distributional Considerations with Environmental Taxation 17

The New Frontier: Carbon Pricing 21

Conclusion 26

Notes 28

References 31

2 A Response To Gilbert E. Metcalf Roberton C. Williams III 35

Environmental Taxes in the United States 35

Lessons for Carbon Policy 37

A Brief Proposal for a U.S. Carbon Policy 41

Notes 43

References 44

3 Evidence On Labor Supply And Taxes, And Implications For Tax Policy, Nada Eissa 45

Tax Policy Changes in the 2000s and Their Impact on Labor Supply Incentives 48

Impact on Labor Supply Incentives 51

A Simple Framework for Evaluating the Impact of Tax Cuts in the 2000s? 56

Taxes and Labor Supply 61

The Budget Set 61

Identification of Labor Supply and Tax Effects 65

What Do We Know about Taxes and Labor Supply? 68

Male Labor Supply 69

Female Labor Supply 72

Intertemporal Responses 78

Implications for Welfare Evaluation of Tax Reform 80

Conclusions 84

Notes 86

References 87

4 A Response To Nada Eissa Steven J. Davis 92

Micro and Macro Studies of Labor Supply Responses to Taxes 93

Longer-Run and Equilibrium Responses to Taxes 95

Labor Supply Responses on Other Margins 96

Summary 98

Notes 99

References 100

5 The Elasticity Of Taxable Income: Influences On Economic Efficiency And Tax Revenues, And Implications For Tax Policy Seth H. Giertz 101

Developments in Assessing the Efficiency Implications of Taxation102

Developments in ETI Research since 2000 105

Issues That Complicate Estimation 107

Recent ETI Estimates 111

Applying the ETI for Tax Policy 115

Data and Institutional Background 117

Revenue and Efficiency Implications of Expiring Tax Legislation 122

Marginal Deadweight Loss 126

Laffer Curves 128

Conclusion 130

Notes 132

References 134

6 A Response To Seth H. Giertz Daniel Feenberg 137

Mean Reversion 139

Inequality 140

Partial versus General 142

References 144

7 Welfare And Macroeconomic Effects Of Deficit-Financed Tax Cuts: Lessons From CGE Models John W. Diamond Alan D. Viard 145

Background 146

Basic Theory in OLG Models 146

Rationale for CGE Modeling 147

Auerbach-Kotlikoff Results 147

Lessons Learned in the 2000s 149

Model Structure and Calibration 152

Production 153

Individual Behavior 154

Calibration 155

Simulation Results 160

Immediate Spending Offset 161

Government Transfer Offset after Ten Years 165

Across-the-Board Tax Increase after Ten Years 168

Summary of Macroeconomic Effects 172

Intergenerational Welfare Effects 173

How Are Deficit-Financed Tax Cuts Typically Paid For? 176

Models of Infinite-Lived Agents 179

Conclusion and Extensions 181

Appendix 184

The Nonresidential Production Sector 184

The Owner-Occupied and Rental Housing Production Sectors 186

Individual Behavior 187

Notes 189

References 191

8 A Response To John W. Diamond Alan D. Viard Laurence J. Kotlikoff 194

References 198

9 The Impact Of Taxes On Dividends And Corporate Financial Policy: Lessons From The 2000s Dhammika Dharmapala 199

Lessons about Dividends, Payout Policy, and Firm Value 202

A Simple Equilibrium Condition 202

The Effects of JGTRRA on Dividends 205

The Effects of JGTRRA on Firm Value 207

Interpreting the Evidence 208

Lessons about Corporate Financial Policy and Portfolio Choices 210

International Financial Equilibrium 211

The Effect of JGTRRA on U.S. Investors' Equity Holdings 215

Lessons about Corporate Tax Integration 220

The Efficiency Costs of Corporate Financial Distortions 220

Corporate Tax Integration and International Financial Integration 221

Future Directions for Dividend Tax Policy 224

Firm-Level Approaches to Corporate Tax Integration 225

Conclusion 226

Notes 227

References 231

10 A Response To Dhammika Dharmapala Douglas A. Shackelford 234

Why JGTRRA Might Have Had No Effect on Dividend Policy 234

Shareholders Not Benefiting from JGTRRA Influence Dividend Policy 235

Repurchases Remained More Tax-Efficient than Dividends 235

Dividents Were Unpopular 236

Rate Reductions Were Temporary 236

Adjustments Distort Dividend Signaling 237

Increased Dividends Have Adverse Implications for Stock Options 237

Alternative Minimum Tax Dulls Benefit 237

Summary 238

Nontax Explanations for the Increase in Dividends 238

What We Have Learned from the Extant Studies 239

Great Paper, circa 2013 242

The Forgotten Capital Gains Tax Cut 243

Conclusion 243

Notes 245

References 246

11 Taxes And Business Investment: Lessons From The Past Decade Alan J. Auerbach Kevin A. Hassett 248

Partial Expensing 251

Dividend Taxes 255

The Investment Effect of Dividend Tax Changes 258

Dividend Payout Changes 261

Conclusion 264

Notes 266

References 267

12 A Response To Alan J. Auerbach Kevin A. Hassett Matthew D. Shapiro 271

Note 278

References 279

Index 281

About The Authors 291

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