Taxes on Risk Taking and Wealth (ch 23) Focus on two aspects that might affect the savings

decisions of the taxpayers: - Taxation of _______________ Taxes can influence the form that savings takes. - Taxation of the accumulation of ____________________ This occurs in 2 forms: A. Taxation and Risk Taking 1. Basic Financial Investment Model Domar and Musgrave, 1944: Individuals have a choice of investing in The government taxes any return from the ________________ asset. The government allows for a deduction against taxable income for ______________________. Result: taxing the returns for the risky asset would ______________________________risk taking because: 2. Real-World Complications a. Less-Than-Full Tax Offset

A tax loss offset refers to:

b. Redistributive Taxation

3. Evidence on Taxation and Risk Taking

4. Labor Investment Applications

B. Capital Gains Taxation A capital gain is: 1. Current Tax Treatment of Capital Gains Taxed on accrual refers to: Taxed on realization refers to:

The tax preference for capital gains is hard to eliminate for many capital goods for 2 reasons: -

a. Step-Up of Basis at Death The basis refers to:

b. Exclusion for Capital Gains on Housing

c. Capital Gains Tax Rates Through the Years y 1978 1986: taxed on ____% of capital gains on assets held for more than ____ months y Tax Reform Act of _______ treated capital gains like other forms of income, the top tax rate on capital gains was _____% y Taxpayer Relief Act of ________ reduced the top rate on long-term capital gains to ___% y 2003 Jobs and Growth Act reduced the top rate to ____% 2. Arguments for Tax Preferences for Capital Gains a. Protection against inflation

b. improved efficiency of capital transactions

c. Encouraging Entrepreneurial Activity

d. Evidence on Taxation and Capital Gains

3. Arguments Against Tax Preference for Capital Gains a. Progressive

b. Haig-Simons

C. Transfer Taxation A transfer tax refers to: 2 Types: -

1. Arguments for the Estate Tax Three arguments: a. progressive

b. avoid concentration of wealth

c. motivation

2. Arguments against the Estate Tax a. Death Tax is cruel

b. Double Taxation

Problems with argument -

c. Administrative Difficulty

d. Compliance and Fairness

D. Property Taxation

Assessment Rates and Assessment Ratios

1. Who Bears the Property Tax?

2. Types of Property Taxation a. Residential Homes vs Businesses

b. Land vs Improvements