The Social Cost of Federal Financing 



103 



Consumer Finances provides good coverage, Model B must give 

 much more detailed estimates for the upper-income classes. Insofar 

 as the tax cut does accrue to families with incomes below |5,000, 



TABLE 10. Incidence by Income Classes of a Proportionate 

 Reduction of Income Tax Payments, 1954 



Family personal income Per cent distribution of 



($ thousand) income tax liability " 



to 3 3.6 



3 to 5 13.2 



5 to 7.5 24.0 



7.5 to 10 14.4 



10 to 15 10.3 



15 to 20 5.0 



20 to 30 6.5 



30 to 50 7.8 



50 to 100 7.7 



Over 100 7.5 



"Goldsmith, op cit., p. 15. The breakdown of the 34.5 per cent paid on 

 incomes above .515,000 is in proportion to the tax lial)ilitics of these classes in 

 1952, as given in tlie Statistics of Income for 1952, Preliminary Report, U. S. 

 Treasury Deparlment, Internal Revenue Service. 



we can simply use the interest rates derived earlier. But a some- 

 what different approach is recjuired for the upper-income groups. 

 In the lower brackets, the diversity of interest rates is explained 

 primarily by the presence or absence of debt and by the kind of 

 debt owed. In the upper brackets, the form of the assets from 

 which income is derived and the rates at which such income is 

 taxed are the most important variables. 



First, we determine what projiortion of families in each class 

 has debts in such amounts that borrowing rates would dominate 

 choices between spending and saving, and then estimate the rele- 

 vant borrowing rates. For the remaining famili-cs, which include 

 a rapidly increasing share as wc go up tlie income scale, we try to 

 determine the kind of earning assets from which they derive their 

 nonwage income and at what rates of retinn this income is received. 

 Again, combining the distribution of incidence of the tax cut with 

 the interest rates ajjpUtable to different income classes, we derive 

 an average rate which nieasiucs the vahie of the money released 

 by the postulated tax ciu. 



