ABSTRACT
The proposed change in the personal income tax (PIT) structure - base expansion plus revenue-neutral reduction in tax rates - alters both the distributional and efficiency effects of the PIT. Personal savings will be potentially affected by the change in the tax treatment of interest, dividends and capital gains in their tax-sheltered and unsheltered forms. The elimination of the tax preferences may have a negative effect on economic efficiency depending on the extent to which these tax preferences currently meet the objectives for which they were designed. The major component of base expansion under the comprehensive income tax proposals is the elimination of all tax assistance to private savings. The comprehensive income tax will also have positive effects on work effort and investment in human capital. Lack of agreement among economists also exists with respect to the effect of tax-assisted saving plans on private savings.
