After presenting major findings and recommendations, the CPI Commission reiterates the estimate of a 1.1 percentage point per annum upward bias. It rejects the contention that the BLS already makes substantial corrections for quality change; that quality improvements and new products accrue only to the rich; and that procedures to make more extensive quality adjustments, valuations of new products, and adjustments for commodity and outlet substitution are impractical. The bias in the CPI can be sharply reduced, as the authors detail in this paper. Coauthors are Ellen R. Dulberger, Robert J. Gordon, Zvi Griliches, and Dale W. Jorgenson.

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This paper examines the appropriate tax treatment of the family in a series of analytical models and numerical examples. For a population of taxpaying couples which differ in earning capacity, we derive the optimal tax rates for each potential earner. These rates depend crucially upon own and cross labor supply elasticities and the joint distribution of wage rates. Our results suggest that the current system of income splitting in the United States, under which husbands and wives face equal marginal tax rates, is nonoptimal. Using results from recent econometric studies, and allowing for a sensitivity analysis, the optimal tax rates on secondary workers in the family are much lower than those on primary earners. Indeed, our best estimate is that the secondary earner would face tax rates only one-half as high as primary earners.

No abstract

Foreign direct investment (FDI) in the United States and U.S. direct investment abroad (DIA) are important economic phenomena as well as a source of political controversy. In 1980, FDI reached $17 billion, about 22% as large as net domestic fixed investment. Correspondingly, DIA reached $19 billion, about 25% as large as net domestic investment in plant and equipment. Since 1980, substantial FDI has continued, whereas DIA has fallen precipitously. Further, the sources of finance for FDI and the uses of earnings on DIA have changed dramatically in the past few years.These flows-in both directions-have become a concern of tax policy. For example, the adoption of the Accelerated Cost Recovery System (ACRS) in 1981, as amended in 1982, was expressly limited to investment in the United States. While the primary motivation behind ACRS was to increase U.S. domestic capital formation, a secondary concern, evidenced in the hearings preceding its adoption, was to stem the flow of U.S. investment abroad. Further, FDI is often seen as an important justification for continuing the U.S. corporate income tax, even by those who favor corporate and personal tax integration. Another example of revenue (and perhaps location of investment) concern is the per country limitation to the foreign tax credit in the administration's tax reform proposal.