[This study presents new estimates of consumption functions based on aggregate U.S. time-series data. The results are striking: a variety of functional forms, estimation methods, and definitions of the real after-tax rate of return invariably lead to the conclusion of a substantial interest elasticity of saving. The implications of this result for the analysis of the efficiency and equity of the current U.S. tax treatment of income from capital are explored. In reducing the real net rate of return, current tax treatment significantly retards capital accumulation. This in turn causes an enormous waste of resources and redistributes a substantial fraction of gross income from labor to capital. Rough estimates of the loss welfare exceed 50 billion per year (a present value close to 1 trillion!) and of the redistribution from labor to capital exceed one-seventh of the capital's share of gross Income.It also suggests that the usual calculations of tax burdens by income class substantially overestimate both the progressivity of the income tax and the alleged regressivity of consumption taxes.]

This study presents new estimates of consumption functions based on aggregate U.S. time-series data. The results are striking: a variety of functional forms, estimation methods, and definitions of the real after-tax rate of return invariably lead to the conclusion of a substantial interest elasticity of saving. The implications of this result for the analysis of the efficiency and equity of the current U.S. tax treatment of income from capital are explored. In reducing the real net rate of return, current tax treatment significantly retards capital accumulation. This in turn causes an enormous waste of resources and redistributes a substantial fraction of gross income from labor to capital. Rough estimates of the loss welfare exceed 50 billion per year (a present value close to 1 trillion!) and of the redistribution from labor to capital exceed one-seventh of the capital's share of gross Income.It also suggests that the usual calculations of tax burdens by income class substantially overestimate both the progressivity of the income tax and the alleged regressivity of consumption taxes.

The location of any given town has commonly been determined by collusion between"interested parties" with a view to speculation in real estate, and it continues through its life-history (hitherto) to be managed as a real estate "proposition." Its municipal affairs, its civic pride, its community interest, coverage upon its real-estate values.

I. Introduction, 589. — II. An optimal negative income tax model, 591. — III. The maximin criterion, 594. — IV. A utilitarian social objective, 597. — V. Conclusion, 598. Our theory … depends upon the validity of a single hypothesis, viz.: that the utility index is a function of relative rather than absolute consumption expenditure. — J. Duesenberry Income, Saving and the Theory of Consumer Behavior

Michael J. Boskin, Martin Feldstein, Effects of the Charitable Deduction on Contributions by Low Income and Middle Income Households: Evidence From the National Survey of Philanthropy, The Review of Economics and Statistics, Vol. 59, No. 3 (Aug., 1977), pp. 351-354

Few issues in public finance stir as much academic debate or public discussion as the appropriate taxation of income from capital. Prescriptions and practices in various countries range from heavier taxation of capital than labor income to subsidization of investment. A variety of features of the current U.S. tax system differentially tax capital income relative to labor income, and certain types of capital income relative to other types. Important examples include the separate corporate income tax, the maximum tax on earned income, the treatment of pensions and life insurance, and the nontaxation of imputed income. In recent years much insight has been gained into several important issues in analyzing capital income taxation. Applications of the theory of optimal taxation have helped clarify the determinants of the optimal taxation of capital income, new empirical results have questioned long-held beliefs about the effects of capital income taxation on private saving and investment, and careful study has elucidated the complex nature of the incentives involved in the various special features of our current tax laws. This paper presents a summary of some recent results in this area of public finance. Toward this end, Section I presents a heuristic discussion of the application of optimal tax theory to the taxation of capital income. We note that efficiency may require something other than a convex combination of income and consumption taxation. Optimality might imply heavier taxation of capital income than in an income tax, on the one hand, or an interest income subsidy, on the other. The key parameters in answering this question are the ownand cross-compensated current and forward price effects on consumption and leisure at different stages of the life cycle. Section II discusses a variety of features of the current U.S. tax system which deal with capital income. Of particular interest are the separate corporate tax, the lack of price level indexing, the deductability of interest payments and the marginal finance decision, and the opportunity to save in some forms free of personal taxes. We conclude that the U.S. tax system, while often taxing capital income quite heavily, is in many respects a hybrid of an income and expenditure tax. Section III reviews some recent empirical research which suggests that private saving may be somewhat more responsive to the real after-tax rate of return than previously conjectured, and Section IV offers a brief conclusion and discusses (in light of the analysis in the paper) some policy issues and options currently under serious consideration.