• The Treasury projection missed the mark because high-income taxpayers' taxable income was 7.3 percent lower than it would have been otherwise.

• For all but 2 percent of taxpayers with an adjusted gross income (AGI) between $50,000 and $200,000, tax rates were constant, and this whole group's taxable income grew by 3.4 percent in 1993.

• The taxable income of taxpayers with an AGI above $200,000 would have been $399 billion with the same 3.4 percent increase, but instead it fell from $374 billion in 1992 to $364 billion in 1992.

• Part of the decline was due to taxpayers' falling below the $200,000 threshold, but even adjusting for this factor, taxable income for those who were or would have been in the $200,000-plus category was $370 billion, or 7.3 percent less than the projected $399 billion.

All taxes impose a deadweight loss, an inefficiency, by encouraging people to do things they would otherwise not have found worthwhile. For example, when their tax rates increase, people may take more of their pay in the form of fringe benefits or buy a more expensive house with a higher deductible interest payment on the mortgage. Taxes also cause inefficiency by inducing people not to do things they would have found worthwhile, such as working harder to make more income.

• These and other inefficiencies caused by the 1993 increases in personal tax rates totaled $15.9 billion.

• This deadweight loss was almost double the amount of revenue raised by the increases in tax rates, making the higher tax rates a very inefficient way to raise revenue.

• The 1993 tax law also eliminated the $135,000 ceiling on the amount of compensation subject to the health insurance tax.

• Had taxpayers not changed their behavior, the increase in the tax base would have extracted an additional $2 billion from taxpayers, but the actual increase in health insurance tax revenue was only $600 million.

• The increase in the health insurance tax base, by raising marginal tax rates by 2.9 percentage points for people with compensation over $135,000, prompted a reduction in taxable income and thus reduced revenues by $1.4 billion.

• The deadweight loss from increasing the health tax base was $2.1 billion, or more than three times the $600 million of revenue raised. David R. Henderson

Source: Martin Feldstein and Daniel Feenberg, "The Effect of Increased Tax Rates on Taxable Income and Economic Efficiency: A Preliminary Analysis of the 1993 Tax Rate Increases," NBER Working Paper No. 5370, November 1995, National Bureau of Economic Research, Cambridge, MA 02138, (617) 868-3900.