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Subject:  Re: The Fiscal Cliff-Solving the wrong problem Date:  11/14/2012  12:29 PM
Author:  Hawkwin Number:  408469 of 538982

It depends on what you mean by "counts." The marginal tax rate has a bigger impact on behavior.

Does it?

Have something to support that? You might be right but I have my doubts.

I personally think the effective rate (via various targetted deductions) typically has a bigger impact on behavior.

For example, I itemize all my donations to claim against my taxes. You cap my deduction for donations and I am more likely to sell those items online or in a yard sale. Net result would be a effective rate tax increase.

If you instead left my donations uncapped and increased my marginal rate, my behavior would remain the same. I might even decide to donate more 'stuff' to reduce my effective rate.
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