THE MAXIMUM TAX ON EARNED INCOME

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Abstract
The provision for a maximum tax rate on earned income was adopted by Congress because it was concluded that high tax rates discourage work effort and encourage tax avoidance devices. The paper first describes the essential features of the maximum tax and summarizes data on its use. The paper then focuses on the disincentive effect of the tax on the use of tax avoidance devices. It is concluded wat the impact of the maximum tax on discouraging the use of tax shelters is quite small.

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