Effects of taxes on economic behavior.

First, it would be good to reduce the uncertainty about the effect of the net-of-tax rate on taxable labor income. New research should distinguish the response by different income levels, marital status, and age/sex groups. More panel data from the Treasury would be enormously helpful in this research. The separate payroll and income taxes should be used to distinguish the own and cross elasticities of husbands and wives.

Second, we need better estimates of the income effect of changes in tax rates. These are needed to calculate the revenue effect of tax changes.

Third, we need to develop a better analysis of the welfare effects of different aspects of capital taxation, particularly the effect of changes in dividends and in capital gains, and in outright tax evasion.

And finally we need to develop better ways of incorporating this research into the analysis done by the staffs of the Treasury and the Joint Tax Committee, and into the thinking of political decisionmakers.

REFERENCES

Auten, Gerald, and Robert Carroll. "Effect of Income Taxes on Household Incomes." Office of Tax Analysis Working Paper (March, 1998).

Carroll, Robert, John Diamond, Craig Johnson, and James Mackie Ill. "A Summary of the Dynamic Analysis of the Tax Reform Options Performed for the President's Advisory Committee on Tax Reform." Office of Tax Analysis (May, 2006).

Feldstein, Martin. "The Effectiveness of the British Differential Profits Tax." Economic Journal 77 No. 308 (December, 1967): 947-53.

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Feldstein, Martin. "The $110,000 Question." Wall Street Journal, September 1, 2004, Page A12.

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Feldstein, Martin, and Shlomo Yitzhaki. "The Effect of the Capital Gains Tax on the Selling and Switching of Common Stock." Journal of Public Economics 9 No. 1 (February, 1978): 17-36.

Gelber, Alexander. "Taxation and Family Labor Supply." Manuscript, Harvard University (November, 2007).

Golosov, Mikhain, and Aleh Tsyvinski. "Optimal Taxation with Endogenous Insurance Markets." NBER Working Paper No. 11185. Cambridge, MA: National Bureau of Economic Research, 2005.

Gordon, Roger, and Joel Slemrod. "Are 'Real' Responses to Taxes Simply Income Shifting between Corporate and Personal Tax Bases?" In Does Atlas Shrug? The Economic Consequences of Taxing the Rich, edited by Joel Slemrod, 240-80. New York: Russell Sage and Harvard University Press, 2000.

Gruber, Jon, and Emmanuel Saez. "The Elasticity of Taxable Income: Evidence and Implications." Journal of Public Economics 84 No. 1 (April, 2002): 1-32.

Musgrave, Richard A. The Theory of Public Finance. New York: McGraw Hill, 1959.

Martin Feldstein

National Bureau of Economic Research, Cambridge, MA 02138