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Distortions From Partial Tax Reform Revealed Through Effective Tax Rates

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  • Burnham, Paul
  • Ozanne, Larry

Abstract

The federal tax code contains many features that distort signals for efficiently allocating investment. We evaluate how well five recent proposals would improve those signals by increasing uniformity of effective tax rates among asset types, between debt and equity financing, between corporate and noncorporate businesses, and between owner–occupied and tenant–occupied housing. We find that three proposals—permanent extension of provisions enacted in 2001 and 2003, permanent extension of partial expensing enacted in 2002, and enactment of the President’s proposed lifetime savings accounts—would reduce some distortions but aggravate others. Two other proposals—partial integration and a capped credit for mortgage interest—would reduce some distortions without aggravating others.

Suggested Citation

  • Burnham, Paul & Ozanne, Larry, 2006. "Distortions From Partial Tax Reform Revealed Through Effective Tax Rates," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(3), pages 611-630, September.
    • Handle: RePEc:ntj:journl:v:59:y:2006:i:3:p:611-30
    DOI: 10.17310/ntj.2006.3.14
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    Cited by:

    1. Ralf Ewert & Rainer Niemann, 2012. "Limited Liability, Asymmetric Taxation, and Risk Taking - Why Partial Tax Neutralities Can Be Harmful," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(1), pages 83-120, March.
    2. Cristian Carini & Michele Moretto & Paolo M. Panteghini & Sergio Vergalli, 2020. "Deferred taxation under default risk," Journal of Economics, Springer, vol. 129(1), pages 33-48, January.
    3. Vito Polito, 2012. "Up or Down? Capital Income Taxation in the United States and the United Kingdom," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(1), pages 48-82, March.
    4. Polito, Vito, 2011. "Deferred Taxation and Effective Tax Rates on Income from Capital in the United States, 2000-2010," Cardiff Economics Working Papers E2011/14, Cardiff University, Cardiff Business School, Economics Section.
    5. Longobardi, Ernesto & Polito, Vito, 2011. "Capital income taxation incentives during economic downturns: re-thinking theory and evidence," Cardiff Economics Working Papers E2011/15, Cardiff University, Cardiff Business School, Economics Section.

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