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Taxable Income Responses to 1990s Tax Acts: Further Explorations

This paper examines alternative methodologies for measuring responses to the 1990 and 1993 federal tax increases. The methodologies build on those employed by Gruber and Saez (2002), Carroll (1998), and Auten and Carroll (1999). Internal Revenue Service tax return data for the project are from the Statistics of Income, which heavily oversamples high-income filers. Special attention is paid to the importance of sample income restrictions and methodology. In general, estimates are quite sensitive to a number of different factors. In contrast to some of the literature, estimates are larger when behavior is measured over three-year intervals as opposed to over one-year intervals – suggesting small transitory responses to tax changes, but larger longer-term responses. When including the richest set of income controls, income-weighted elasticity estimates based on one year differencing range from 0 to 0.19. Similarly estimated elasticities over three year intervals are about 0.32. When adding adjacent year tax rates to model, estimates based on one year differencing now range from 0.30 to 0.43 and estimates when differencing over three year intervals range from 0.97 to 1.37. In most cases, estimates from an end-year approach are not statistically different from 0 for the 1990s. However, even for the approaches that produce statistically significant results, estimates are sensitive to an array of factors and plausible sensitivity checks often result in estimates that differ greatly. A major conclusion is that isolating the true taxable income responses to tax changes is inherently complex and little confidence should be placed on any single estimate.Elasticity of Taxable Income; Behavioral Responses to Taxation; Taxation;

The Elasticity of Taxable Income During the 1990s: A Sensitivity Analysis

This paper examines alternative methodologies for measuring responses to the 1990 and 1993 federal tax increases. The methodologies build on those employed by Gruber and Saez (2002), Carroll (1998) and Auten and Carroll (1999). Internal Revenue Service tax return data for the project are from the Statistics of Income, which heavily oversamples high-income filers. Special attention is paid to the importance of sample income restrictions and methodology. Estimates are broken down by income group to measure how responses to tax changes vary by income. In general, estimates are quite sensitive to a number of different factors. Using an approach similar to Carroll’s yields elasticity of taxable income (ETI) estimates as high as 0.54 and as low as 0.03, depending on the income threshold for inclusion into the sample. Gruber and Saez’s preferred specification yields estimates for the 1990s of 0.30. Yet another approach compares behavior only in the end years, before and after tax changes, and yields estimated ETIs ranging from 0 to 0.71. The results suggest tremendous variation across income groups, with people at the top of the income distribution showing the greatest responsiveness. In fact, the estimates suggest that the ETI could be greater than 1 for those at the very top of the income distribution. The major conclusion, however, is that isolating the true taxable income responses to tax changes is extremely complicated by a myriad of other factors and thus little confidence should be placed on any single estimate. Additionally, focusing on particular components of taxable income might yield more insight.Elasticity of Taxable Income; Behavioral Responses to Taxation; Taxation;

The Elasticity of Taxable Income over the 1980s and 1990s

Taxable (and broad) income elasticities are estimated using tax return data from 1979 to 2001. Data from the Continuous Work History Survey (CWHS) yield an estimated taxable income elasticity for the 1990s that is about half the corresponding 1980s estimate. Estimates from the full Statistics of Income, which heavily oversamples high–income filers, generally confirm the CWHS results. More sophisticated income control brings the estimates for the two decades closer together—to 0.40 for the 1980s and 0.26 for the 1990s. Work by Kopczuk (2005) implies that the narrowing of the tax base since 1986 could account for 14 to 29 percent of the remaining difference.Taxable Income Elasticity; Behavioral Responses to taxation; Efficiency;

A Sensitivity Analysis of the Elasticity of Taxable Income

This paper applies the methods of Gruber and Saez (2002) to a panel of tax returns spanning 1979 through 2001 in order to examine the sensitivity of the elasticities of taxable and broad income to an array of factors. The paper finds that that Gruber and Saez’s approach yields an estimated elasticity of taxable income (ETI) for the 1990s that is about half the size of this paper’s corresponding estimate for the 1980s. In general, the addition of demographic information has little impact on elasticity estimates for the 1980s, but lowers the 1990s estimates, especially for broad income, which is a more encompassing income measure than is taxable income. Finally, the paper finds that weighting regression results by income not only has a substantial impact on the estimates, but also results in overall estimates that are influenced by a small number of predominately high-income filers. For example, excluding 100 of the most influential observations (just 0.2 percent of the sample) lowers the estimated ETI for the 1980s from 0.37 to 0.11.Elasticity of Taxable Income; Behavioral Responses to Taxation; Taxation;

Rice Intensification in a Changing Environment: Impact on Water Availability in Inland Valley Landscapes in Benin

This study assesses the impact of climate change on hydrological processes under rice intensification in three headwater inland valley watersheds characterized by different land conditions. The Soil and Water Assessment Tool was used to simulate the combined impacts of two land use scenarios defined as converting 25% and 75% of lowland savannah into rice cultivation, and two climate scenarios (A1B and B1) of the Intergovernmental Panel on Climate Change Special Report on Emissions Scenarios. The simulations were performed based on the traditional and the rainfed-bunded rice cultivation systems and analyzed up to the year 2049 with a special focus on the period of 2030–2049. Compared to land use, climate change impact on hydrological processes was overwhelming at all watersheds. The watersheds with a high portion of cultivated areas are more sensitive to changes in climate resulting in a decrease of water yield of up to 50% (145 mm). Bunded fields cause a rise in surface runoff projected to be up to 28% (18 mm) in their lowlands, while processes were insignificantly affected at the vegetation dominated-watershed. Analyzing three watersheds instead of one as is usually done provides further insight into the natural variability and therefore gives more evidence of possible future processes and management strategie

Comment on Richardson: Progressive Federal Taxation Drives Redistribution from Blue to Red States

Professor Richardson documents redistribution from Democratic states to Republican states and links this to the 1994 Republican revolution -- suggesting a deliberative effort by Republicans to redistribute income towards their constituents. Seth Giertz of the University of Nebraska argues that what Professor Richardson\u27s analysis really shows is that red states -- but not necessarily Republicans within those states -- are (increasingly) the major beneficiaries of federal redistributive policies -- and that blue states are (increasingly) the benefactors

New York is not Arkansas

When she declared her candidacy for the U. S. Senate from New York, First Lady Hillary Rodham Clinton, as expected, promised to fight for an ever larger federal government—in part by expanding programs targeting children and the poor and opposing Republican tax cuts. But, Mrs. Clinton also drew attention to another issue when she declared: “It is just wrong that today New York sends $15 billion more in taxes each year to Washington than New York gets back.” Mrs. Clinton must believe that the net return of federal tax dollars to New Yorkers is unrelated to the size of the federal government—or at least believes that New York voters believe this

Recent Literature on Taxable-Income Elasticities

This paper reviews the literature on taxable-income elasticities, focusing primarily on empirical studies examining the U.S. tax changes of 1981, 1986, 1990, and 1993 and the bracket creep of the late 1970s and early 1980s. The paper first provides background on the importance of the elasticity of taxable income both for forecasting income tax revenue and for assessing the efficiency implications of tax rate changes. It then discusses the major methodological issues and obstacles before delving into the literature. The paper emphasizes the different methodologies employed and the sensitivity of estimates to an array of factors, including sample selection, the tax reform under examination, and econometric techniques (or model specification). Although it recognizes advances in the literature in recent years, the paper concludes that responses to tax rate changes are far from fully understood and that there is much to be gained from continued research on this topic.taxable income, elasticity, tax revenue, efficiency