TaxProf Blog

Tuesday, May 4, 2004

Saku Aura (Missouri-Columbia Dep’t of Economics) has posted Estate and Capital Gains Taxation: Efficiency and Political Economy Considerations on SSRN. Here is the abstract:

In this paper a simple dynastic overlapping-generations model with homogeneous agents is used to analyze the optimal use of capital income tax, labor income tax and estate tax. The results of this analysis add to the conventional wisdom about capital income taxation: while it is true that in the long run the estate tax rate should be set to zero, it is also true that other capital income taxation is a usable policy tool even in the steady state.

The other contribution of the paper is the building of a simple dynamic political economy model where the structure of capital taxes is determined. In a median-voter framework with no policy commitment, estate taxation is used too heavily as a capital-tax-revenue-collecting tool relative to the second-best optimum for the social planner.

Monday, May 3, 2004

Calvin Johnson (Texas) has posted A Thermometer for the Tax System: The Overall Health of the Tax System as Measured by Implicit Tax on SSRN. Here is the abstract:

The implicit tax on tax-exempt municipal bonds is a thermometer that is now giving warning that the current tax system is not in good shape. The U.S. needs to stop using the tax system as a vehicle to delivering subsidies. In fact, the U.S. needs to give considerable attention to repairing the tax base through a tax overhaul at least as major as the Tax Reform Act of 1986. Tax exempt municipal bonds give an interest rate that is lower than that on comparable taxable bonds by the amount of what is called the implicit tax. In theory, high tax bracket investors should be willing to accept an implicit tax, just short of their statutory tax rate. The implicit tax is now very low, hovering not far above zero. The implicit tax is so low today because investors have too many easy alternative ways to avoid tax and are not willing to accept very low interest rates from tax exempt municipal bonds. The low implicit tax indicates that tax is an inefficient vehicle for delivering tax subsidies and that the tax system is not reaching its best sources.

Monday, May 3, 2004

Donald Tobin (Ohio State) has posted Investing in Our Children: A Not So Radical Proposal on SSRN. Here is the abstract:

The United States is currently under-investing in the human capital of its children. This significant investment deficit threatens both our children’s vitality and the nation’s ability to compete in a knowledge-based economy. At all income levels, investment in children – in education, housing, training, and nutrition – has significant long-term beneficial returns for both the recipients of the investment and for society as a whole. This article proposes to shift the focus of our current fiscal policies towards human capital investment in children. It advocates a self-sustaining investment program that delivers resources directly to children and that children are required to repay when they start working. The article relies on the economic literature on human capital, the educational literature on the impact of money on childhood attainments, and the political theory literature on civic responsibility to help justify a self-sustaining investment program implementing through the tax code. This article seeks to promote new ways of evaluating our current programs and policies and to facilitate further discussion about a child-centered investment strategy.