USC Gould School of Law. November 2, 2009. An American Dual Income Tax: Making a Virtue of Necessity. Edward D. Kleinbard Professor of Law. Sources of Private Sector Income. The private sector generates income from two sources: Labor (roughly 2/3) Capital (roughly 1/3) Capital income :
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November 2, 2009
An American Dual Income Tax:
Making a Virtue of Necessity
Edward D. Kleinbard
Professor of Law
* The U.S. has several very low tax rate brackets; in practice, a U.S. dual income tax probably would have graduated rates up to a lower maximum rate than would apply to labor income.
Constant tax burden on capital income minimizes misallocation of investment
Relatively low rate minimizes under-investment generally
Mitigates some distortions attributable to over-leveraging (because value of “tax shield” to debt is reduced)
Flat rate creates more hospitable environment for risk-taking, because gains and losses are taxed symmetrically
Addresses corporate tax international competitiveness / mobility issues
Responds to use of corporation as a tax shelter if corporate income tax < personal tax and law not amended