Using DINA to Evaluate U.S. Capital Income Tax Proposals

Abstract

This paper extends application of the distributional national account (DINA) method beyond historical analysis to a forward-looking policy assessment of eight topical U.S. capital income tax proposals including corporate income tax repeal, corporate integration, and a reduced form of the pending 2017 U.S. tax legislation. An Adjusted DINA framework is developed that caters to the U.S. institutional perspective with a profit-and-investment shifting concept to recast the idea of labor bearing some corporate income tax. In this model, projections of policy induced growth, if applicable, are incorporated into distributions. This Adjusted DINA framework highlights that corporate tax reductions, deficit-financed or not, as well U.S. adoption of permissive territoriality jeopardize low income groups. Economic growth projections for the proposals are shown to put at risk whether some low income groups experience post-tax income losses or meagre absolute gains, and even if the projected growth were to materialize there is little relief for the relative inequality owing to capital income tax reductions.