110 



MULTIPLE PURPOSE RIVER DEVELOPMENT 



TABLE 15. Summary of Derivation of Interest Rate Applicable to Proportionate 

 Reduction of Persojial Income Tax Payments 



(!) (2) 



Interest rate Interest rate (3) (4) 



applicable to applicable to Average rate Per cent 



Income class debtors investors for class distribution 



($ thousand) (per cent) (per cent) (per cent) of tax cut 



to 3 — — 7.0 3.6 



3 to 5 — — 5.8 13.2 



5 to 7.5 6.2 5.00 5.8 24.0 



7.5 to 10 5.6 4.93 5.4 14.4 



10 to 15 4.9 5.03 5.0 10.3 



15 to 20 — 4.56 4.6 5.0 



20 to 30 — 4.64 4.6 6.5 



30 to 50 — 4.58 4.6 7.8 



50 to 100 — 4.56 4.6 7.7 



Over 100 — 4.63 4.6 7.5 



Average applicable interest rate 



5.29 



Source: See text. 



REDUCING THE CORPORATION INCOME 

 TAX PROPORTIONATELY 



In order to discover the interest rate applicable to a cut in the 

 corporation income tax, we must first analyze its incidence. To 

 what extent is it passed on to consumers through lower prices and 

 to workers through higher wages? There is little evidence on these 

 questions. Colm argues -^ that the benefit of the reductions after 

 World War II accrued primarily to profits and, to some extent, to 

 wages, but that under less inflationary conditions more of the tax 

 cut would be passed on to consumers. Musgrave,-^ in his study of 

 the incidence of taxation, assumes that 33 per cent of the tax is 

 passed on to consumers and 12 per cent to wage and salary earners, 

 leaving 55 per cent as the increase in corporate earnings. We adopt 

 his assumption for our tax cut. 



estimate is increased by .61 percentage points to 5.9 per cent. This probably 

 overstates the effect, since the return to the investor is identical with the 

 return to the saver on a large part of the property incomes. 



^ Gerhard Colm, "The Corporation and the Corporation Income Tax in the 

 American Economy," American Economic Review, May 1954, p. 493. 



^ Musgrave, Carroll, Cook, and Frane, op. cit., p. 16. 



