Implicit Taxes and Measured Progressivity
Municipal bondholders bear a tax no distribution table records: the yield they forgo because the tax exemption is capitalized into prices. The paper measures that implicit tax household by household — Survey of Consumer Finances portfolios, marginal rates computed on the interest margin with TAXSIM, and a market-implied tax rate identified from the short end of the municipal term structure — and finds it raises the 99th-to-99.9th percentile's average effective federal income tax rate by 0.34 percentage points at the anchor, with essentially no change below the top. An experimental draft, not for citation or circulation.
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