财政学The Personal Income Tax.ppt

* * 1st box - shows that tax break reduces the interest rate SL governments have to pay 2nd box – shows that cost of break to Treasury exceeds gain to SL government * * * Each line enters separately with a mouse click. * Interest on State and Local Bonds Tax break reduces interest rate SL governments have to pay Market ROR on Taxable Bonds= ip = 15% Individuals MTR= t = 30% Government Tax-Exempt Bond ROR = ig = (1-t)ip = 10.5% Cost of break to Treasury exceeds gain to SL government ip = 15% t1 = 30% ig = 10.5% t2 = 20% ig = 12% If person 2 lends $1,000 Treasury loses $1,000*.15*.20 = $30 and State saves $1,000*.03 = $30 If person 1 lends $1,000 Treasury loses $1,000*.15*.30 = $45 and State saves $1,000*.03 = $30 Capital Gains Example 1: Tax is levied only when capital gains are realized P = $100,000 ROR=g = 10% # Years held=20 MTR=.2 $100,000*(1+.1)^20 = $672,750 Capital Gain = $672,750 - $100,000 = $572,750 Tax = $572,750 * .2 = 114,550 Net Gain = $458,200 Example 2: Tax is levied as capital gains accrue regardless of whether realized P = $100,000 g = 10% net g = 10%(1-.2) = 8% $100,000*(1+.08)^20 = $466,096 Capital Gain = $466,096 - $100,000 = $366,096 Taxes deferred are taxes saved Lock-in Effect Gains Not Realized at Death Evaluation of Capital Gains Rules No justification under optimal tax literature for preferential treatment of capital gains under H-S criterion Other justifications Capital gains are unexpected windfalls Require sacrifice of abstaining from consumption Needed to stimulate capital accumulation and risk taking Counterbalance to effect of inflation Tax Arbitrage Assume Caesar pays taxes at a 35% rate and can borrow all he wants at a 15% interest rate Let Cesar borrow $1,000. Each year he pays $150 in interest (= .15*1,000) Interest payment reduces taxable income $150 and saves $52.50 in taxes (= .35*150) His net payment of interest is $150 - $52.50 = $97.50 for an effective interest rate of $97.50/$1,000 =