Abstract
where T is equal to tax dollars paid on interest earnings, r is the interest rate on the investment, SLS is the starting lump sum, and n is the year for which the estimate is being made. Tax dollars paid on interest earnings is found from tax tables a fact that we felt was so obvious that it did not need to be expressed in equation' form. One major difficulty we have with the discussion by Johnson and Phelps is their emphasis on the marginal tax brackets in a single tax code. Such emphasis causes concern in a general model that can be used to project the impact of federal, state, or local income taxation. When using multiple tax tables, the iterative technique constantly increases the effective (average) tax rate estimate and may step several times within a bracket before either arriving at a solution or moving to the next bracket.
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