Download or read book A Simpler Theory of Optimal Capital Taxation written by Emmanuel Saez and published by . This book was released on 2016 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This paper develops a theory of optimal capital taxation that expresses optimal tax formulas in sufficient statistics following the methodology of optimal labor income taxation. We first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth. In this case, there are no transitional dynamics, the steady-state is reached immediately and has finite elasticities of capital with respect to the net-of-tax rate. This allows for a simple and transparent optimal tax analysis with formulas expressed in terms of empirical elasticities and social preferences (as in the optimal labor income tax theory). These formulas have the advantage of being easily taken to the data to simulate optimal taxes, which we do using U.S. tax return data on labor and capital incomes. Second, we show how these results can be extended to a much broader class of utility functions and models. The same types of formulas carry over