Taxing the Rich More: Preliminary Evidence from the 2013 Tax Increase

Emmanuel Saez

No 22798, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper provides preliminary evidence on behavioral responses to taxation around the 2013 tax increase that raised top marginal tax rates on capital income by about 9.5 points and on labor income by about 6.5 points. Using published tabulated tax statistics from the Statistics of Income division of the IRS, we find that reported top 1% incomes were significantly higher in 2012 than in 2013, implying a large short-run elasticity of reported income with respect to the net-of-tax rate in excess of one. This large short-run elasticity is due to income retiming for tax avoidance purposes and is particularly high for realized capital gains and dividends, and highest at the very top of the income distribution. However, comparing 2011 and 2015 top incomes uncovers only a small medium-term response to the tax increase as top income shares resumed their upward trend after 2013. Overall, we estimate that at most 20% of the projected tax revenue increase from the 2013 tax reform is lost through behavioral responses. This implies that the 2013 tax increase was an efficient way to raise revenue.

JEL-codes: H31 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-pbe and nep-pub
Note: PE
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Citations: View citations in EconPapers (6)

Published as Taxing the Rich More: Preliminary Evidence from the 2013 Tax Increase , Emmanuel Saez. in Tax Policy and the Economy, Volume 31 , Moffitt. 2017

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Journal Article: Taxing the Rich More: Preliminary Evidence from the 2013 Tax Increase (2017)
Chapter: Taxing the Rich More: Preliminary Evidence from the 2013 Tax Increase (2016)
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