NBER Publications by Leonard E. Burman

One possible explanation for the difficulty in controlling the budget is that a major component of spending —tax expenditures—receives privileged status. It is treated as tax cuts rather than spending. This paper explores the implications of that classification and illustrates how it can lead to higher taxes, larger government, and an inefficient mix of spending (too many tax expenditures). The paper then analyzes alternative budgeting approaches that would explicitly incorporate and measure tax expenditures. It concludes by analyzing ways to control tax expenditures (and other spending) and the special challenges presented by tax expenditures.

Previous theoretical analyses of the capital gains tax have suggested that investors have considerable opportunity to avoid the tax. Yet, past empirical work has found relatively little evidence of such activity. Using a previously unavailable panel data set with a very large sample of high-income individuals, this paper aims to bring the theory and evidence closer together by examining the behavior of individual taxpayers over time. Though confirming past findings that avoidance of tax on realized capital gains is not prevalent, we do observe that tax avoidance activity increased after the passage of the Tax Reform Act of 1986, and that high-income, high-wealth and more sophisticated taxpayers were most likely to avoid tax. However, the efficacy of tax avoidance strategies depends on b...