These taxable income levels will be indexed for inflation after 2008. In addition, the Act decreased the tax rates above 15 percent, effective January 1, 2001, as follows: The overall limitation on itemized deductions and the personal exemption phase-out will be reduced by one-third

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This article reexamines the measures of tax progressivity in the fifty states derived Abstract by Greene and Balkan (1987) and finds them to be substantially in error. Recalculated progressivity indexes provided in this article exhibit far less deviation than the indexes published by Greene and Balkan. Greene and Balkan (1987) (hereafter G&B) used several of the tax progressivity indexes analyzed in Kiefer (1984) to measure tax progressivity in the fifty U.S. states in 1977. While the Kiefer article concluded that each progressivity index is associated with a unique definition of progressivity and that the indexes may give inconsistent responses to changes in tax policy or income distribution, G&B found deviations in the progressivity measures that were truly astounding. In some cases, for example, they found virtually no correlation in the rankings of the state tax systems by progressivity indexes that would have been expected to provide rather similar results. Indeed, the results of applying the different progressivity measures in the G&B study were so divergent that the meaningfulness and usefulness of the very concept of progressivity, at least as embodied in these indexes, seemed to be called into question.

gains tax cuts in Congress in 1990 is This article presents an overview of a widely expected. simple simulation model of the lock-in ef-The capital gains tax has important effect of the capital gains tax on trading cor-ficiency effects because it affects the rate porate stock. The results of simulations of of return on investing in capital assets and several policy changes are reported, the the cost of switching capital assets, repolicies include a 15 percent flat capital ferred to as the "lock-in" effect. The regains tax rate, President Bush's 1989 cap-sponses of investors to these effects also ital gains tax cut proposal, and taxation of have "feedback" effects on tax collections. accrued capital gains at death If the lock-in effect were large enough, a higher capital gains tax rate could actually result in lower capital gains tax receipts because of the reduced level of gains 2 rrHE tax on capital gains was increased realizations. Conversely, a capital gains JL by the Tax Reform Act of 1986 by retax cut could actually raise tax revemoving the exclusion of 60 percent of the nue. gains on assets held longer than 6 months. There have been numerous attempts to Combined with the tax rate changes in the measure the magnitude of the lock-in ef-Act, this revision increased the maximum fect of the capital gains tax using crossmarginal tax rate on capital gains from section analysis,' time-series analysis,' 20 percent to 28 percent for the highest analysis of Vooled time-series and crossincome taxpayers (the rate is 33 percent section data, and panel data.6 While these for some upper-income taxpayers). studies have contributed significantly to The capital gains tax increase is one of our knowledge of the responsiveness of the most controversial elements of the capital gains realizations to tax rate 1986 tax reform. In 1989 Congress serichanges, they also suffer from important ously considered four proposals to reverse limitations. One limitation is that there it.1 President Bush proposed cutting the are virtually no data on several impormaximum tax rate on long-term gains to tant variables-for example, the amount 15 percent; he also proposed gradually ofaccrued but unrealized capital gains or lengthening the holding period to qualify the amount of accrued gains passing for the favorable treatment to tbxee years. through estates-and only very limited Congressman Rostenkowski, Chairman Of data are available on the holding periods the House Ways and Means Conunittee, of capital assets. proposed indexation of the basis of capital A second limitation is that the econoassets along with a minimum basis rule metric studies have been largely unable for assets held at least five years. The to investigate the time pattern of the cap-House of Representatives passed a capital ital gains realization response. It is gengains tax cut that would have lasted two erally agreed that the long-run response years and would have been followed by of realizations to a tax rate change should indexation. A capital gains tax cut Prodiffer from the ...

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