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Tax Reform And Automatic Stabilization, Thomas J. Kniesner, James P. Ziliak
Tax Reform And Automatic Stabilization, Thomas J. Kniesner, James P. Ziliak
Center for Policy Research
A fundamental property of a progressive income tax is that it provides implicit insurance against shocks to income by dampening the variability of disposable income and consumption. The Economic Recovery Tax Act of 1981 (ERTA) in combination with the Tax Reform Act of 1986 (TRA86) greatly reduced the number of marginal tax brackets and the maximum marginal rate, which limits the stabilizing effect of the tax system on household consumption when pre-tax income fluctuates. We examine the effect of the federal income tax reforms of the 1980s on the associated degree of automatic stabilization of consumption. The empirical framework derives …
Microdata Panel Data And Public Policy: National And Cross-National Perspectives, Robert Carroll, Douglas Holtz-Eakin, Harvey S. Rosen, Mark Rider
Microdata Panel Data And Public Policy: National And Cross-National Perspectives, Robert Carroll, Douglas Holtz-Eakin, Harvey S. Rosen, Mark Rider
Center for Policy Research
This paper investigates the effect of entrepreneurs' personal income tax situations on the growth rate of their enterprises. We analyze the personal income tax returns of a large number of sole proprietors before and after the Tax Reform Act of 1986 and determine how the substantial reductions in marginal tax rates associated with that law affected the growth of their firms as measured by gross receipts. We find that individual income taxes exert a statistically and quantitatively significant influence on firm growth rates. Raising the sole proprietor's tax price (one minus the marginal tax rate) by 10 percent increases receipts …