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The Economists' VoiceTop Economists Take On Today's Problems$
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Joseph Stiglitz, Aaron Edlin, and J. Bradford DeLong

Print publication date: 2011

Print ISBN-13: 9780231143653

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231143653.001.0001

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Taxes on Investment Income Remain Too High and Lead to Multiple Distortions

Taxes on Investment Income Remain Too High and Lead to Multiple Distortions

Chapter:
(p.161) Chapter 19 Taxes on Investment Income Remain Too High and Lead to Multiple Distortions
Source:
The Economists' Voice
Author(s):

Martin Feldstein

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231143653.003.0019

Recent tax reforms have significantly reduced the marginal tax rates on saving in the United States. That's the good news. The bad news is that that tax rates on saving and investment remain much higher than they would be in any rational system. Many economists also grossly underestimate the efficiency cost of taxing capital income: they think that if the taxation of capital income does not cause a big reduction in saving. This chapter explains how economists are wrong. It argues that taxes on saving and investment, through the capital gains tax and corporation tax, are too high. This discourages saving for the future overall, and distorts the saving and investment that do occur. Too much capital is directed to noncorporate rather than wealth-creating corporate investment, and corporations are discouraged from paying dividends to their investors.

Keywords:   tax reform, tax rates, tax policy, savings rates, investment, capital gains tax, corporation tax, dividends, capital income

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