The Social Cost of Federal Financing 93 



Per cent 



Increased personal exemption 5.87 



Reduced excises 5.49 



Weighted average for Model A 5.79 



INCREASING THE EXEMPTION OF 

 THE PERSONAL INCOME TAX 



A tax cut in the form of a higher exemption frequently has been 

 proposed in Congress. Assuming that the income tax liabilities 

 are not shifted, it is easy to compute the incidence of the tax cut 

 by income classes. Let us suppose the exemption is raised by $1.00. 

 The tax saving on the typical return in each income class depends 

 upon the marginal tax rate paid; the saving for the income class 

 also depends upon the number of exemptions claimed. It can be 

 seen from Table 4 that most of the tax saving accrues to those with 

 low and middle incomes — those with incomes of $5,000 or less. 



TABLE 4. Incidence by Income Classes of an Increase 

 in the Personal Exemption 



Number of Tax saving Total tax Per cent 



Income class exemptions * per dollar '' saving distribution 



($ thousand) (000) (cents) (3 thousand) of tax saving 



to 3 24,472 21 5,139 19.5 



3 to 5 44,557 24 10,694 40.6 



5 to 7.5 23,066 27 6,228 23.6 



7.5 to 10 4,906 33 1,619 6.1 



10 to 15 2.705 41 1.109 4.2 



15 to 20 984 50 492 1.9 



20 to 30 839 59 495 1.9 



30 to 50 507 67 340 1.3 



50 to 100 223 79 176 .7 



Over 100 63 90 57 .2 



* U. S. Treasury Department, Internal Revenue Service, Statistics of Income 

 for 1951, 1955, based on returns with taxable income. 



'' Marginal tax rates at average income tax liability reported in each class. 



Discovery of the rates at which each income class saves or bor- 

 rows requires examination of its asset and credit position. The 



