Consumer anticipation of income tax changes

The paper synthesizes existing consumption theories to suggest that consumers modify their consumption, savings, debt, and asset acquisition behavior in advance of well-publicized changes in federal personal income tax changes. Existing cross-section and time series data document such adjustments prior to enactment of the 1964, 1968, and 1975 federal income tax revisions. Uncertainty reinforces tax-increase anticipation effects and moderates tax decrease anticipation effects. Further, the response to actual tax changes is reduced, and may even be offset, by consumers' anticipatory actions. The theory and data presented help resolve controversy surrounding the effectiveness of the 1968 tax increase.