Virgil, of Old Rome, poet and
author of the Aeneid, owned a Roman villa with land. Thereon, it is recorded, he
buried a housefly after an elaborate funeral with pallbearers and eulogies. The
ceremony qualified Virgil's land as a tax-free cemetery.
Reported by E.M
Boyd, The Grab Bag
According to the
Internal Revenue Service, the number used in the infamous Form 1040 was a
random selection. In Old
Reported by Bernard
Kameroff, 422 Tax Deductions
Our federal tax
system is, in short, utterly impossible, utterly unjust and completely
counterproductive...[It] reeks with injustice, and is fundamentally
un-American.
President Ronald Reagan
It is time for a
complete overhaul of our income tax system. I still tell you, it's a disgrace
to the human race. All my life I've heard promises about tax reform, but it
never quite happens.
President Jimmy Carter
The income tax
has made more liars out of the American people than golf has. Even when you
make a tax form out on the level, you don't know when it's through if you are a
crook or a martyr.
Will Rogers
If you drive a
car, I'll tax the street
If you try to sit, I'll tax your seat
If you get too cold, I'll tax the heat
If you take a walk, I'll tax your feet.
The Beatles,
"Taxman"
A tax loophole is something that
benefits the other guy. If it benefits you, it is tax reform.
Tax reform means "Don't tax
you, don't tax me. Tax that fellow behind the tree."
Senator Russell B.
Long (
Text:
Gruber, Jonathan, Public
Finance and Public Policy , Second Edition, 2007
Website: http://www.owlnet.rice.edu/~econ483/
Username: econ483
Classes: 10:50AM -
12:05PM Tues./Thurs. in BB 116
Office Hours: By appointment (zodrow@rice.edu or x4891)
Teaching
Assistant:
David Splinter (splinter@rice.edu)
Prerequisites: Economics 370 and knowledge of
basic differential and integral calculus.
The
two hour exams will be given in class on Thursday,
Oct. 2nd and Thursday,
Nov. 20th. The final exam will be Tuesday, Dec. 16th,
9am-12 BB 116. Students who miss an exam without making prior
arrangements with the instructor will automatically be given a grade equal to
twenty points less than the minimum grade made on the exam.
The final exam will be comprehensive, with a significant emphasis on
material presented since the third hour exam.
In general, the course grade is
determined as the weighted average of the grades on the two hour exams (25% each) and the final exam (50%).
Course Grade Calculation (NO Term Paper)
|
First Hour Exam |
Second Hour Exam |
Final Exam |
|
25% |
25% |
50% |
There are, however, two exceptions to
this general rule.
First, each student may elect to write a term paper. This paper should address a single narrowly
defined tax policy issue in depth, and the instructor must approve the
topic. Students are encouraged to choose
a topic and begin research early in the semester. The paper should be at
least 15 double-spaced pages in length. Details on preparation of the paper are
provided below.
For full credit, papers must be submitted electronically to zodrow@rice.edu by midnight on the last day of classes, Friday, December 5. Papers may be turned in late at a penalty of 5 points per day. For students who elect to write a term paper, the course grade will be the maximum of the grades calculated by the following two methods:
Course Grade Calculation Options with a Term Paper
|
Lower Hour Exam |
Other Hour Exam |
Final Exam |
Tax Policy Paper |
|
10% |
20% |
45% |
25% |
|
25% |
25% |
25% |
25% |
Thus, a good term paper will allow you to reduce
significantly the weight attached to either your worst hour exam or your final exam
in determining your final course grade.
Please note, however, that it is quite possible that a poor term paper
could lower your grade.
Second, all students are eligible for a bonus of up to 4 percentage points on their
final cumulative class average based on their class participation.
The procedure described above is the sole
determinant of the final course grade.
Note in particular that the letter grade distributions provided for each
hour exam during the semester are only suggestive of relative class standing.
A set of homework problems for the course is
available at the web site. Homework
problems should be completed within 3-5 days of the day the relevant material
is covered in class. Although these
problems will not be graded, they provide helpful amplifications and extensions
of material covered in the lectures, as well as examples of questions that
might be asked on the examinations.
Solutions will be posted at the website approximately one week after the
day the relevant material is covered in class.
It is strongly recommended that students solve these problem sets,
either individually or in study groups, before consulting the posted solutions.
The exams and the term paper are covered by the Rice
Honor Code; the homework problems are not.
This website is maintained by David Splinter
(splinter@rice.edu). Please e-mail him if you have any problems with the
website. Course information will also be
posted as necessary at this site, so you should check it periodically.
Any student with a disability requiring
accommodations in this class should come see me and also contact the Disability
Support Services in the
SCHEDULES
Schedule for
Readings and Assignments
Exam Schedule:
Exam
One: Thursday, October 2
Exam
Two: Thursday, November 20
Final
Exam: TBA
1. Introduction/Overview
Gruber: 1 (skim), 2 (the microeconomics of public finance - review carefully)
*Steuerle, Contemporary
U. S. Tax Policy
*Report of the President’s Advisory Panel
on Federal Tax Reform
*Diamond and
Zodrow, “Introduction,” in Diamond and Zodrow
*McLure and Zodrow, “The Study and Practice of
Income Tax Policy,” in Quigley and
Smolensky.
2. Alternative Tax Bases for Individual and Business Tax Bases
Lecture
Outline: Alternative Ideal Tax Bases for Individuals
Lecture
Outline: Applying Alternative Ideal Tax Bases for Individuals
Lecture Outline:
Alternative Ideal Tax Bases for Businesses
Notes: Alternative Tax Treatments of Individuals
Notes: Alternative Tax Treatments of Business
Gruber: 18.1, 18.4,
25.3-4
*
*Zodrow and Mieszkowski, “Introduction,” in Zodrow and Mieszkowski.
*Boskin, Frontiers of Tax Reform
*Hall and Rabushka, The Flat Tax
*Congressional Budget Office, “The
Economic Effects of Fundamental Tax Reform”
Problem Set #1:
Alternative Individual Tax Bases
Solution
3. Individual Income Tax: Theory and Practice
Lecture Outline:
Individual Income Tax
McLure
and Zodrow, "Treasury I and the Tax Reform Act of 1986: The Economics and
Politics of Tax Reform." pp. 37-48,54-58
Gruber: 18.2,
18.5, 18.7
4. Business Income Tax: Theory and Practice
Lecture Outline: Business
Taxes
McLure and Zodrow,
"Treasury I and the Tax Reform Act of 1986: The Economics and Politics of
Tax Reform." pp. 48-54
Gruber: 23.2
*Bird, "Why Tax
Corporations?"
Problem Set #2:
Alternative Business Tax Bases
Solution
1. Equity
Gruber: 17.1, 18.3, 19.4, 20.4
Lecture Outline: Equity
Notes: Equity and Alternative Tax Bases.
*
*Mieszkowski and Palumbo, "Distributive Analysis of Tax Reform," in
Zodrow and Mieszkowski
2. Efficiency
Gruber: 20.1
Lecture Outline: Efficiency
Notes: Efficiency and Alternative Tax Bases.
*
*Gravelle, "Behavioral Responses to a Consumption Tax," in Zodrow and
Mieszkowski.
*Feldstein, "The Effect of
Taxes on Efficiency and Growth", 2006 NBER working paper.
Problem Set #3: Efficiency
Costs of Taxation
Solution
3. Simplicity and Enforceability
Gruber: 25.1-2, 25.5
Lecture Outline: Simplicity
Slemrod and Bakija, "Tax Simplicity and Enforceability," in Slemrod
and Bakija.
Notes: Simplicity and Alternative Tax Bases
*Gale and
Holtzblatt, "The Role of Administrative Issues in Tax Reform," in
Zodrow and Mieszkowski.
*
1. Taxation and Labor Supply
Gruber: 21
Lecture
Outline: Labor Supply
Congressional
Budget Office, "Labor Supply and Taxes," pp. 1-11.
*Moffit and Wilhelm, "Labor
Supply Decisions of the Affluent," in Slemrod.
*Hausman,
"Labor Supply," in Aaron and Pechman, pp. 27-84.
Problem Set #4: Taxation
and Labor Supply
Solution
2. Taxation and Saving
Gruber: 22
Lecture Outline:
Taxation and Saving
Notes: Taxation and Saving
*Auerbach, "The Bush Tax Cut
and National Saving."
*Engen and
Gale, "The Effects of Fundamental Tax Reform on Saving," in Aaron and
Gale pp. 83-121.
3. Taxation and Risk-Taking; Taxation and Human Capital Accumulation
Gruber: 23.1-2
Lecture Outline: Human Capital
Lecture Outline: Risk-taking
Problem Set #5: Taxation
and Saving
Solution
1. Taxation, the Cost of Capital and Marginal Effective Tax Rates, and
Investment
Gruber: 24.4
Lecture Outline:
Investment Overview
Notes: Marginal Effective Tax Rates
2. Tax Effects on the Cost of Capital and METRs/Debt Finance
Lecture Outline: Debt
Finance
Notes: Marginal Effective Tax Rate Examples/Debt
Finance
Problem Set #6:
Investment and the Cost of Capital
Solution
3. Tax
Effects on the Cost of Capital and METRs/Equity Finance
Notes: Marginal Effective Tax Rate Examples/Equity
Finance
4.
Taxation and Financing Decisions
Gruber: 24.5
Lecture Outline: Equity
Fin Inv
Lecture Outline: Dividend Taxes
Notes: Traditional and New Views of Dividend
Taxation
Problem Set #7: Taxation
and Investment
Solution
5.
Taxation of Multinationals
Gruber: 24.6-7
Lecture Outline:
International Tax
Notes: Capital Mobility and International
Capital Taxation.
*Ballard, "International Aspects of Fundamental Tax Reform," in
Zodrow and Mieszkowski.
6.
Integration of the Individual and Corporate Income Taxes
Gruber: pg. 716
Lecture Outline: Integration
Graetz and
*Hubbard, "Capital Income Tax in Tax Reform," in Zodrow and
Mieszkowski.
Problem Set #8: Income
Tax Integration
Solution
1. Basic Concepts of Tax Incidence Analysis
Lecture Outline: Tax
Incidence
Gruber: 19.1-2
2. General Equilibrium Tax Incidence Analysis
Gruber: 19.3-5, 24.3
Notes: The Incidence of Taxes
*Fullerton and Metcalf,
"Tax Incidence".
*Fullerton and Metcalf, "The
Distribution of Tax Burdens: An Introduction."
Problem Set #9: General
Equilibrium Modeling
Solution
1. Optimal Taxation
Gruber: 20.2-3, 20.5
Lecture Outline: Optimal Taxation
2. Optimal Tax Reform.
Notes: Transitional Issues in Consumption Tax Reforms.
*Zodrow,
"Transitional Issues in the Implementation of a Flat Tax or a National
Retail Sales Tax," in Zodrow and Mieszkowski
3. Taxation of the Family
Gruber: 18.6
Lecture Outline: Family
Issues
Congressional
Budget Office, "For Better or For Worse: Marriage and the Federal Income
Tax," pp, xiii-xix, 1-36.
Problem Set #10: Taxation
and the Family
Solution
4. Local
Public Finance and the Property Tax
Gruber: 23.4
Lecture
Outline: State and Local Public Finance
Notes: Property Taxation
*Zodrow, “The Property Tax as a Capital
Tax: A Room with Three Views” http://www.ntanet.org/
5. State
Sales and Corporate Income Taxes
Lecture
Outline: State Taxes
Notes: Tax Revenue Sources for the
State of Texas.
*Zodrow,1999,
Problem Set #11: Intergovernmental
Grants
Solution
6.
Taxation of Electronic Commerce
McLure, "Thinking Straight about the Taxation
of Electronic Commerce"
7. Estate
and Gift Taxation
Gruber: 23.3, 23.5
Lecture
Outline: Estate Tax
Notes: The U.S. Experience with Estate
Taxation.
*Gale, Hines and Slemrod, Rethinking Estate and Gift Taxation
The final exam will be Tuesday, Dec. 16th, 9am-12,
room BB 116.
The optional research paper should address a single
narrowly defined tax policy issue in depth; the topic must be approved by the instructor.
Students are encouraged to choose a topic and begin research early in the
semester. Although students may cite articles in the popular
press and/or information from tax reform advocacy and other public policy web
sites or blogs, the main source of information must be the academic literature
on the issue being investigated, including both theoretical and empirical
analyses as relevant. Comprehensive searches of this literature can be
conducted using the following online data bases:
EconLit: http://libadm87.rice.edu/colldev/newalphaindexes.cfm
(search “EconLit”)
National Tax Journal: http://ntanet.org (search “NTJ Full Text Articles”)
National Bureau of Economic Research: http://papers.nber.org/papers.html
Congressional Budget Office: http://www.cbo.gov/publications
(search “Taxes”)
Joint Committee on Taxation: http://www.house.gov/jct/pubs.html
Tax Analysts Journals (Tax Notes, Tax Notes
International, State Tax Notes): http://library.rice.edu/research/indexes_databases/LexisNexis
> “Legal” (tab at top) > “Tax Law” (link at left) > Search desired
topic, author, journal, etc. > Sources = “Tax Analysts Tax Magazines,
Combined”
For example, a paper might explore the tax treatment of a specific item, such
as fringe benefits, home mortgage interest, capital gains, charitable
contributions, dividends, tax-exempt bonds, life insurance, financial
institutions, child care expenses, etc. A good paper would include a clear
statement of the issue, a description of alternative tax treatments including
those recommended in current tax reform proposals, an evaluation of current and
proposed treatments that draws on the relevant academic literature found in
your literature search, a recommended policy change (or a recommendation to
maintain the status quo and reject reform alternatives), and a thorough
justification of your recommendation.
The paper should be at least 15 double-spaced pages
in length. For full credit, papers must be submitted electronically as a MS
Word document to zodrow@rice.edu by midnight on the last day of classes for the semester.
Papers may be turned in late at a penalty of 5 points per day.
All material taken from outside sources must be
properly cited in the text and referenced in the bibliography. For material
that is paraphrased, the citation in the text should take the form: Zodrow
(2006). For material that is directly quoted, the quotation should be enclosed
in quotation marks or offset in the text and the citation should take the form:
Zodrow (2006, p. 207).
Article:
Zodrow, George R.
and Peter Mieszkowski, 1986. “Pigou,
Tiebout, Property Taxation, and the Underprovision of Local Public Goods.” Journal of Urban Economics 19: 356-370.
Article in a
Collective Volume:
Zodrow, George R.,
2006. “Should Capital Income be Subject to Consumption-Based Taxation?” In Taxing Capital Income, edited by Henry
A. Aaron, Len Burman and C. Eugene Steuerle.
Book:
McLure, Charles E.
Jr., John Mutti, Victor Thuronyi and George Zodrow, 1990. The
Taxation of Income from Business and Capital in
Manuscript:
Diamond, John and
George R. Zodrow, 2005. “Economic
Effects of a Personal Capital Income Tax Add-On to a Consumption Tax,”
Manuscript,
Working
Paper:
Diamond, John and
George R. Zodrow, 2005. “The
Edited Book:
Zodrow, George R.
and Peter Mieszkowski (editors), 2002.
Government
Report:
Congressional Budget
Office, 1997. The Economic Effects of Comprehensive Tax Reform.
Comments
and questions to: splinter@rice.edu
Last modified:
Oct., 2008