Do We Now Collect Any Revenue from Taxing Capital Income?

44 Pages Posted: 2 Feb 2003 Last revised: 7 Feb 2003

See all articles by Roger H. Gordon

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics; Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Laura Kalambokidis

University of Minnesota - College of Agricultural, Food and Environmental Sciences - Department of Applied Economics

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: February 2003

Abstract

The U.S. income tax has long been recognized as a hybrid of an income and consumption tax, with elements that do not fit naturally into either pure system. The precise nature of this hybrid has important policy implications for, among other things, understanding the impact of moving closer to a pure consumption tax regime. In this paper, we examine the nature of the U.S. income tax by calculating the revenue and distributional implications of switching from the current system to one form of consumption tax, a modified cash flow tax. Although earlier work had suggested that in 1983 such a switch would have cost little or no revenue at all, we calculate that in 1995 this switch would have cost $108.1 billion in tax revenues, suggesting that the U.S. income tax does impose some positive tax on capital income. The net gains from such a switch have a U-shaped pattern, with those in the lowest and highest deciles of labor income receiving the largest proportional gains, although those in the highest decile would have by far the largest absolute gains.

Suggested Citation

Gordon, Roger H. and Kalambokidis, Laura and Slemrod, Joel B., Do We Now Collect Any Revenue from Taxing Capital Income? (February 2003). NBER Working Paper No. w9477. Available at SSRN: https://ssrn.com/abstract=375329

Roger H. Gordon (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Laura Kalambokidis

University of Minnesota - College of Agricultural, Food and Environmental Sciences - Department of Applied Economics ( email )

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Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

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