What happens when you tax the rich?
Subtitle: evidence from executive compensation
By: Austan Goolsbee.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series -- working paper 6333; Working paper series (National Bureau of Economic Research) -- working paper no. 6333.
Publisher: National Bureau of Economic Research
Published: 1997
Place of publication: Cambridge, MA
Language: eng
Number of pages: 35
Subjects: Wealth tax -- United States -- Econometric models.; Executives -- Salaries, etc. -- Taxation -- United States -- Econometric models.; Employee stock options -- Taxation -- United States -- Econometric models.
Description: This paper reexamines the responsiveness of taxable income to changes in in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995. The data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income. This small group of executives can account for as much as 20% of the aggregate change in wage and salary income for the 1 million richest taxpayers and one person alone can account for over 2%. But the decline is almost entirely a short-run shift in the timing of compensation rather than a permanent reduction in taxable income. The short-run elasticitiy of taxable income with respect to the net of tax share exceeds one but the elasticity after one year is at most 0.4 and probably close to 0. The response comes almost entirely from a large increase in the exercise of stock options in the year before the tax change, followed by a decline in the year of the tax change and the change is concentrated among executives at the top of the income distribution. Executives without stock options are 6 times less responsive to taxation. Other types of compensation such as salary and bonus or nontaxed income are either not responsive to tax rates or not large enough to make a difference. The estimated elasticities show that the dead weight loss of recent tax increases was around 15 to 25 percent of the revenue generated.
Notes: "December 1997."

JEL no. H24.

Includes bibliographical references (p. 33-35).

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