Alternate Indexing Schemes for Nonbusiness Income Taxation: Distributional and Revenue Effects
Ostrowski, Barbara Ann
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Permalink
https://hdl.handle.net/2142/71386
Description
Title
Alternate Indexing Schemes for Nonbusiness Income Taxation: Distributional and Revenue Effects
Author(s)
Ostrowski, Barbara Ann
Issue Date
1983
Department of Study
Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Accounting
Abstract
As one of the consequences of the Economic Recovery Tax Act of 1981, individual income tax rate brackets (including the zero bracket amounts) and the personal exemption amount will be indexed beginning in calendar year 1985. The purpose of this indexation is to mitigate the effects of inflation on the tax system. In this research, indexation as a tax policy tool was examined. The distributional and revenue effects of the following systems were compared using 1973 as the base year and 1974-78 as the evaluation period: (1) a system in which the base year tax law (1973) was maintained for the period under study (1974-78) and the changes actually legislated were ignored (the 1973 Law Model); (2) a system in which indexation as specified by the Economic Recovery Tax Act of 1981 was added to the system simulated in step 1 (the ERTA Model), and (3) an alternate system which extended the simulation in step 2 by indexing nonbusiness credits and selected long term assets/liabilities (e.g., capital and interest items) (Alternate 0% and 60% Models).
The following total tax revenue amounts ($533.7 billion; $403.6 billion; $421.4 billion; and $404.9 billion) were generated between 1974 and 1978 by the 1973 Law Model, the ERTA Model, the Alternate 0% Model, and the Alternate 60% Model, respectively.
The following conclusions were drawn relative to the distributional effects. Considering the tax systems as a whole, the models as arranged from most progressive to least progressive are the Alternate 0% Model, the 1973 Law Model, the ERTA Model, and the Alternate 60% Model. Over time, the 1973 Law Model became less progressive; both Alternate Models, more progressive; and the ERTA Model remained essentially unchanged.
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