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
Syllabus: http://www.owlnet.rice.edu/~econ483/Fall-Syllabus-2009.doc
Classes: 10:50am -
12:05pm Tuesday-Thursday in BB 102
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.
Disabilities: Any student with
a disability requiring accommodations in this class should come see me and also
contact the Disability Support Services in Allen Center.
The two hour exams will be on (or near) the dates indicated in the attached schedule. 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 second hour exam. In general, the course grade is determined as follows:
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. Papers may be turned in late at a penalty of 5 points per day, not counting weekends. 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 worse 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 5 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. The exams and the term paper
are covered by the Rice Honor Code; the homework problems (discussed below) are
not.
A set of homework problems is available
on the course web site. Homework
problems should be completed within 3-5 days of the day the relevant material
is covered in class. Although these
problem sets 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 on 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 website is maintained by the course
teaching assistant (David Splinter, splinter@rice.edu), who should be contacted 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.
SCHEDULES
Schedule
for Readings and Assignments
Exam Schedule:
Exam
One: Thursday, October 1
Exam
Two: Thursday, November 12
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 (2005)
*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
*Bradford, Ch’s. 2-3.
*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: 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: 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
*Bradford, Ch.
8.
*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
*Bradford, Ch.
9.
*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: 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: Simplicity, Compliance and
Administration,” 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: 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: 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
Handout: Debt Finance Table
Problem
Set: 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: 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 Warren, "Integration of Corporate and Individual Income Taxes:
An Introduction." http://library.rice.edu/research/indexes_databases/LexisNexis
> “Legal” (tab at top) > “Tax Law” (link at left) > Search: “Graetz, Michael AND Warren,
*Hubbard, "Capital Income Tax in Tax Reform," in Zodrow
and Mieszkowski.
Problem
Set: Income Tax Integration
Solution
1. Basic Concepts of Tax Incidence Analysis
Lecture Outline: Tax Incidence
Gruber: 19.1-2
Fullerton and Rogers, Who Bears the Lifetime Tax Burden?,
pp. 1-21.
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: 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: 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: 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 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, not
counting weekends.
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 Aaron, Henry J., Len Burman,
and C. Eugene Steuerle, Taxing Capital Income, 49-81.
Brookings Institution Press, Washington, DC.
Book:
McLure, Charles E. Jr., John Mutti,
Victor Thuronyi, and George R. Zodrow,
1990. The Taxation of Income from Business and Capital in Colombia. Duke
University Press, Durham, NC.
Manuscript:
Diamond, John and
George R. Zodrow, 2005. “Economic Effects of a Personal Capital
Income Tax Add-On to a Consumption Tax.” Unpublished manuscript, Rice
University, Houston, TX.
Working
Paper:
Diamond, John W., and
George R. Zodrow, 2005. “The U.S. Experience with the Estate Tax and
its Implications for Wealth Transfer Taxation in Latin America.” Baker Institute for Public Policy Working
Paper (November). Baker Institute for Public Policy, Houston, TX.
Edited Book:
Zodrow, George R., and Peter Mieszkowski (editors),
2002. United States Tax Reform in the 21st Century. Cambridge
University Press, Cambridge, UK.
Government
Report:
Congressional
Budget Office, 1997. The Economic Effects of Comprehensive Tax
Reform. Congressional Budget Office, Washington, DC.