NCPA - National Center for Policy Analysis

Planning Ahead For Higher Taxes

November 24, 1998

Studies show that even large tax hikes -- such as the 1993 tax increase -- have little effect on how much high-income earners make over the long term. But higher taxes do affect how affluent people, such as corporate executives, make their money.

  • A study by the University of Chicago's Austan Goolsbee found that corporate executives making at least $250,000 a year arranged to have their taxable income decline by nearly 16 percent as the '93 increases went into effect -- primarily by exercising stock options in 1992, rather than 1993.
  • But the shift was only short-term and not a permanent reduction in taxable income.
  • A study by Robert Moffitt of Johns Hopkins University and Mark Wilhelm of Pennsylvania State University established that the number of hours wealthy men worked changed little after marginal tax rates were substantially lowered by the 1986 Tax Reform Act.
  • Yet another study, by the University of Michigan's Roger Gordon and Joel Slemrod, found that a rise over the years "in corporate tax rates relative to personal rates resulted in an increase in reported personal income and a drop in reported corporate income."

Researchers say this last study shows that the mix of executive compensation is shifted to minimize taxes, without reducing net income.

Source: Perspective, "Paying Up," Investor's Business Daily, November 24, 1998.


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