Top Personal Income Tax Rates Research Articles

The wealthy as a barrier to tax reform

Abstract In the optimal design of tax reform proposals, and in decisions about when and how to recommend them, it is useful to take explicit account of issues of political feasibility. In the United States—and probably around the world—important political barriers work against the enactment of major progressive tax reforms. A close look at US poll and survey data indicates that opposition by the general public is not a significant barrier: large majorities favour progressive taxation in general and favour a number of specific progressive tax changes, including higher top personal income tax rates; higher taxes on corporations; increased taxation of realized capital gains; and taxation of unrealized gains at death. But there exist other serious political barriers against tax reform, including an institutional status quo bias that makes any major policy change (especially any progressive change) very difficult; and strong political opposition from business corporations and wealthy individuals. The best available evidence indicates that nearly all US business firms, and most multi-millionaires and billionaires, oppose practically any sort of progressive tax reform. The best evidence also indicates that these firms and individuals exercise far more influence on policy-making than ordinary citizens do. We mention some possible strategies for dealing with this problem.

Determinants of top personal income tax rates in 19 OECD countries, 1981–2018

AbstractThis article aims to map the political economy of top personal income tax rate setting. A much-discussed driving factor of top rate setting is the corporate tax rate: governments may prefer to limit the differential between both rates in order to prevent tax-friendly saving of labour incomes inside corporations. Recent studies have highlighted several other driving factors, including budgetary pressure, partisan politics, and societal fairness norms. I compare these and other potential determinants in the long run (1981–2018) by studying tax reforms of 226 cabinets in 19 advanced Organisation for Economic Co-operation and Development (OECD) countries using regression models. I find little evidence for the effects of economic, political, and institutional factors; instead, the main determinant of the top rate is the corporate tax rate. As corporate tax rates are still declining under competitive pressure, the recently set minimum rate of 15% will not stop tax competition from constraining progressive income taxation.

Entrepreneurship and personal income tax: evidence from Canadian provinces

This paper employs the dynamic panel estimation method to investigate the effects of the top personal income tax rate on entrepreneurship as proxied by the employer business entry rate using data from Canadian provinces over the period 1984–2015. The empirical findings of this paper show that the top income tax rate has a negative and statistically significant effect on entrepreneurship both in the short and long term. According to the preferred estimate of this study, a one percentage point increase in the top statutory marginal income tax rate is associated with a 0.13 percentage point decrease in the business entry rate in the short term and a 0.41 percentage point decrease in the long term. Based on the long-term results, on average, a province that raises its top personal income tax rate by one percentage point can expect to have about 405 fewer new employer businesses enter its economy. This is a significant loss for an economy that has been experiencing a decline in entrepreneurship for a long time. The key findings of this paper are robust to various sensitivity checks.

Are Elasticities of Taxable Income Rising?

This paper assesses a possible explanation for the global downward trend in top personal income tax rates over the last decades: globalization and the related tax evasion and avoidance opportunities could have raised elasticities of taxable income, which would imply lower optimal tax rates. The paper estimates elasticities of taxable income for top income earners using a large sample of economies and years with a common method, allowing an analysis of trends in such elasticities. The paper finds that elasticities do not appear to exhibit any clear pattern over the years. The downward trend in tax rates must have other possible explanations, which are briefly discussed.

Are Elasticities of Taxable Income Rising?

This paper assesses a possible explanation for the global downward trend in top personal income tax rates over the last decades: globalization and the related tax evasion and avoidance opportunities could have raised elasticities of taxable income, which would imply lower optimal tax rates. The paper estimates elasticities of taxable income for top income earners using a large sample of economies and years with a common method, allowing an analysis of trends in such elasticities. The paper finds that elasticities do not appear to exhibit any clear pattern over the years. The downward trend in tax rates must have other possible explanations, which are briefly discussed.

Harsh New Rules For Employee And Shareholder Loans

Abstract This month, "Tax Topics" examines the changes proposed in the November 12, 1981 federal budget relating to the taxation of stock purchase and housing loans. The changes, if enacted, will come into effect in 1982 to tax the benefits derived from low-interest and interest-free loans. As a result of public pressure, some transitional rules have been announced since the budget date to phase-in the new rules. Introduction Since November 12, 1981, whim Finance Minister Allan MacEachen introduced his proposed sweeping tax changes, there has been a public outcry at the breadth of tax changes and the lack of public discussions preceding the budget. In addition, the original budget was notable in its lack of transitional rules regarding the implementation of many important changes. The proposed taxation of stock purchase loans and honsing loans is one of the few areas that, due to the furor created, has seen some substantive changes since November 12, 1981. However, the draft legislation is not expected until April or May of this year. so it is quite conceivable that the rules may change yet. Many taxpayers associated with the oil and gas industry will be particularly hard hit by these proposals, because of the relatively widespread use of interest-free loans in the industry. For junior oil com panies needing maximum amounts of cash resources to finance exploration and development, the use of interest-free loans to enable employees to acquire company shares has been an attractive compensation device. As the accompanying examples illustrate, although Mr. MacEachen has lowered the top personal income tax rates, the additional amounts that will be included in taxable income can create a greater tax liability. The New Rules According to the budget proposals beginning in 1982, employees and shareholders will be fully taxed on benefits derived from certain loans and other forms of indebtedness. The benefits will be determined by deducting actual interest paid, if any, in the year and within 30 days of the end of the year from imputed interest to be calculated at prescribed rates. The prescribed rate, in future, will be adjusted every three months in relation to the average interest rate on 90-day treasury bills during the first month of the preceding quarter. Although it was orginally announced that the prescribed rate for the first quarter of 1982 would be set at 19%, because of a decline in interest rates since the budget, the prescribed rate was subsequently reduced to 16% for this quarter. Although a loan bearing interest at a rate below the prescribed rate will usually give rise to a taxable benefit, there will be no income inclusion unless the rate charged is also below the prevailing rate available in financial markets at the time the loan was made. The proposed new rules will generally apply to all loans and indebtedness regardless of whether issued before or after the November budget date.