Working Paper: NBER ID: w10273
Authors: Emmanuel Saez
Abstract: This paper use income tax return data from 1960 to 2000 to analyze the link between reported incomes and marginal tax rates. Only the top 1% incomes show evidence of behavioral responses to taxation. The data displays striking heterogeneity in the size of responses to tax changes overtime, with no response either short-term or long-term for the very large Kennedy top rate cuts in the early1960s, and striking evidence of responses, at least in the short-term, to the tax changes since the 1980s. The 1980s tax cuts generated a surge in business income reported by high income individual taxpayers due to a shift away from the corporate sector, and the disappearance of business losses for tax avoidance. The Tax Reform Act of 1986 and the recent 1993 tax increase generated large short-term responses of wages and salaries reported by top income earners, most likely due to re-timing in compensation to take advantage of the tax changes. However, it is unlikely that the extraordinary trend upward of the shares of total wages accruing to top wage income earners, which started in the 1970s and accelerated in the 1980s and especially the late 1990s, can be explained solely by the evolution of marginal tax rates.
Keywords: No keywords provided
JEL Codes: H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Secular factors (Z12) | Increase in top income shares (D33) |
| Marginal tax rates (H29) | Reported incomes (D31) |
| Tax cuts of the 1980s (E65) | Reported business income by high-income individuals (H24) |
| Reductions in marginal tax rates (1986-1988) (H23) | Increase in top incomes (D31) |
| Tax reforms of 1986 and 1993 (H29) | Short-term responses in reported wages and salaries among top income earners (J31) |