Search Results

The taxation associated with pension funds is significantly different from that experienced by other forms of saving. It is important to note that tax privileges prove to be one of the reasons that underlie the growth of pension funds in certain countries, particularly the high marginal rates of income taxation in the postwar context. Ippolito estimates that workers may be able to lessen their lifetime tax liability by 20 to 40% through optimally utilizing pensions. In contrast, disadvantages in tax may be associated with how some countries lack development in terms of pension funds. Tax privileges may thus affect various patterns of asset accumulation on capital markets. This chapter attempts to evaluate some of the theoretical reasons for imposing fiscal treatment on pension-fund contributions, benefits, and asset returns and compares the theories with the experiences of some countries.

Many policies impact on inter-temporal consumption choices, with taxes on capital income being the most obvious example. This chapter examines the welfare effects of linear and non-linear personal income taxes, as well as taxes on corporate income, in a two-period setting. The shadow discount rate obtained by Harberger (1969) and Sandmo and Dre_ze (1971) is personalized in the presence of non-linear income taxes, while the corporate tax is included using the Miller (1977) equilibrium, in which consumers specialize in holding debt or equity, solely on the basis of their tax preferences. A risk premium is included in the social discount rate using the capital asset pricing model (CAPM), and arguments by Arrow and Lind (1970) for using a lower risk premium for public sector projects are also examined.

This chapter discusses double taxation treaties (DTTs). The existing network of more than 2,500 bilateral DTTs represents an important part of international law. Current DTTs are all based on two models, the Organization for Economic Co-operation and Development (OECD) and United Nations (UN) model DTTs, which in turn are based on models developed by the League of Nations between 1927 and 1946. All DTTs are remarkably similar in the topics covered (even the order of articles are always the same) and in their language. About 75% of the actual words of any given DTT are identical with the words of any other DTT. Thus, the DTT network is the most important element of the international tax regime, that is, the generally applicable rules governing income taxation of cross-border transactions.

This chapter discusses post-war developments in Hong Kong's system of income taxation as shaped by Sir Mark Young and Sir Alexander Grantham. Young's term in office was marked by his attempt to introduce a normal income tax, resulting in the Inland Revenue Ordinance 1947, which resurrected, in a modified form, the “partial income tax” provided for by the War Revenue Ordinance 1941. Shortly after the Ordinance became law in May 1947, however, he retired and so it fell to Grantham to pursue the goal of a normal income tax. However, the public record suggests that Grantham was reluctant to do anything which would antagonise Hong Kong's business community and that his prevarications effectively transformed the supposedly temporary Ordinance into a permanent feature of Hong Kong's tax system.

Under the current income tax, capital income is taxed sometimes presumptively, sometimes on an actual basis and sometimes not at all. Moreover, the tax rates are sometimes proportional but in other instances progressive. Furthermore, apart from the very special treatment of freelancers, the labour income of directors/dominant shareholders in closely held companies is not taxed in the same way as the labour income of employees or sole proprietorships. The capricious taxation of capital and labour income violates basic equity and efficiency notions. To remedy these defects, a true dual income tax should be introduced, under which capital income is taxed at a moderate, uniform rate, primarily in view of its greater mobility, while labour income continues to be taxed at progressive rates. The Nordic dual income tax serves as a model for the analysis.

In the Netherlands, the tax treatment of capital income influences the allocation of capital and risk-taking, resulting in deadweight losses, tax arbitrage, and financial fragility. Moreover, the tax treatment of capital income implies that income redistribution is not achieved at the lowest social costs. Fundamental reform of the taxation of capital income in the Netherlands can generate substantial efficiency and equity gains, while reducing tax arbitrage and financial fragility. This chapter proposes a uniform tax treatment of all capital income from savings, portfolio investments, pensions, owner-occupied housing, and business ownership with a uniform, flat-rate tax on all capital incomes. The efficiency of the mix of Dutch taxes is increased by shifting the tax burden from labour to capital income as much as possible in a distribution-neutral way. The debt bias should be removed in the entire tax system.

Chapter 2 begins with some background material on taxes, transfers, and redistribution in actual economies. The role of the state is evidently the starting point for the study of optimal taxation and public economics in general. This chapter discusses different ethical positions in optimal redistributive tax literature. What rationale may be given for the existence of the state and the power it possesses in taxation and public spending? Any normative theory such as optimal tax theory must have a view of the proper functions of the government. The chapter also briefly discusses obstacles to employ lump-sum taxation and introduces a simple two-type model for a first step to optimal income tax modelling.

This chapter examines the political attitudes of the Southern mass public in the wake of the Great Depression and the New Deal. Taking advantage of hundreds of public opinion polls conducted beginning in the mid-1930s, the chapter documents Southern whites' collective turn against many aspects of the New Deal as well as their persistent ideological diversity on economic issues. The chapter illustrates these developments with a focus on four policy areas: old-age pensions, minimum wages, union security agreements, and income taxation. It then summarizes these patterns using a dynamic group-level item response theory (IRT) model, which estimates the economic conservatism of demographic subpopulations in each state and year. Based on this and other evidence, the chapter argues that the South's turn to the right was driven partly by the increasingly urban and union-oriented character of New Deal liberalism, which alienated rural areas throughout the nation, and partly by white Southerners' growing sense of threat to their region's system of racial hierarchy.

The goal of this chapter is to lay the groundwork for the arguments that follow throughout the remainder of this book. The role of taxation in securing justice in the context of a global economy characterized by international capital mobility is examined. The starting point is a widely (though hardly universally) endorsed view of international justice that accepts the existence of independent states on the world stage under the so-called society-of-states model of international justice. The purpose of cooperation on international taxation is identified in terms of two complementary aims autonomous states have in a globalized economy: on the one hand, the pursuit of national wealth through the facilitation of international capital mobility, and on the other hand the continued protection of their political autonomy. It is argued that the first aim gives rise to fairness questions regarding the distribution of the benefits of this cooperation (the ‘cooperative surplus’) between the cooperating states. It is suggested that there are two principles of international justice that can resolve these fairness questions: the entitlement principle and the equal benefit principle. It is argued that the second aim requires that these principles be implemented in a way that allows states to remain politically autonomous, which in practice requires that they remain capable of pursuing income taxation. In the next chapter, some of the main obstacles to achieving these aims are considered and the prospects for removing them.

An empirical application of optimal-tax theory to the Netherlands is presented using state-of-the-art models and recent estimates of how the tax base responds to changes in the tax system. The results for optimal taxes are compared with the existing system. The main conclusions are that, although the optimal rate structure depends on the preferences for redistribution, it never is flat. Furthermore, effective marginal tax rates on middle incomes in the current system are relatively high compared with optimal tax rates, suggesting that the average tax burden on middle-income groups is low compared with low- and high-income groups. Finally, a higher top tax rate generates little, if any, additional government revenue.

This chapter presents an overview of the U.S. tax system focusing on individual and corporate taxation and how that relates to the taxation of capital and income. Some historical perspective is provided as well evidence on the cross-sectional implications of our tax system.

The Netherlands currently taxes capital income on the basis of a presumptive rate of return and leaves the actual returns on capital untaxed. This means that the Netherlands effectively levies a wealth tax instead of a capital-income tax. A tax on actual returns is more equitable and more efficient than the current tax. It would, moreover, be better for macro-economic stability. Thus, the Dutch government would be wise to move from a tax on presumptive returns to a tax on actual returns. Contrary to current policy, such a tax should ideally be levied on the returns on all forms of private wealth, including housing and pension wealth. Finally, it should, again ideally, tax capital gains on an accrual basis and tax above-normal returns at a higher rate than normal returns.