The Psychology of Taxing Capital Income: Evidence from a Survey Experiment on the Realization Rule

89 Pages Posted: 18 May 2021 Last revised: 14 Jul 2022

See all articles by Zachary D. Liscow

Zachary D. Liscow

Yale University - Law School

Edward G. Fox

University of Michigan Law School

Multiple version iconThere are 2 versions of this paper

Date Written: May 17, 2021

Abstract

We conduct the first survey experiment to understand public attitudes about the realization rule for capital gains. This rule requires that assets usually must be sold before gains on them are taxed and thus makes taxing capital income much harder. We have three main findings. First, respondents strongly prefer to wait to tax gains on stocks until sale: 75% to 25%. But the flip side is that there is surprisingly strong support for taxing gains on assets at sale or transfer, including at death, in areas where current law never taxes those gains. Second, these stated views change only modestly when randomized participants observe a policy debate composed of videos explaining both the pros and cons of taxing before sale, though the pro and con treatments have large effects individually. And, third, among many possible explanations of these attitudes, we find particular evidence for three: mental accounting; status quo effects; and a desire to tax consumption, not income.

Keywords: capital income taxation, realization rule, survey experiment, social economics

JEL Classification: D72, D91, G41, H20, H31, K34

Suggested Citation

Liscow, Zachary D. and Fox, Edward G., The Psychology of Taxing Capital Income: Evidence from a Survey Experiment on the Realization Rule (May 17, 2021). Journal of Public Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3848064 or http://dx.doi.org/10.2139/ssrn.3848064

Zachary D. Liscow (Contact Author)

Yale University - Law School ( email )

127 Wall St.
New Haven, CT 06511
United States

Edward G. Fox

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

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