Martin Feldstein analyzes the deadweight loss of the income tax, arguing that traditional methods significantly underestimate its true impact. He shows that tax avoidance through changes in compensation and consumption patterns leads to much higher deadweight losses than previously estimated. Using the TAXSIM model calibrated to 1994 data, he finds that the deadweight loss per dollar of revenue is over twelve times higher than Harberger's classic estimate. A proportional increase in tax rates leads to a deadweight loss of nearly two dollars per incremental dollar of revenue. Repealing the 1993 tax rate increase for high-income taxpayers would reduce the deadweight loss by $24 billion while increasing tax revenue. Feldstein emphasizes that the income tax is equivalent to an excise tax on ordinary consumption, and that the deadweight loss can be measured by the change in ordinary consumption induced by tax changes. He calculates the deadweight loss using the elasticity of taxable income with respect to the net of tax share, finding that it is substantially larger than traditional estimates of labor supply elasticity. The deadweight loss of the income tax is significantly higher than previously thought, and the paper highlights the importance of considering tax avoidance in assessing the true cost of the income tax.Martin Feldstein analyzes the deadweight loss of the income tax, arguing that traditional methods significantly underestimate its true impact. He shows that tax avoidance through changes in compensation and consumption patterns leads to much higher deadweight losses than previously estimated. Using the TAXSIM model calibrated to 1994 data, he finds that the deadweight loss per dollar of revenue is over twelve times higher than Harberger's classic estimate. A proportional increase in tax rates leads to a deadweight loss of nearly two dollars per incremental dollar of revenue. Repealing the 1993 tax rate increase for high-income taxpayers would reduce the deadweight loss by $24 billion while increasing tax revenue. Feldstein emphasizes that the income tax is equivalent to an excise tax on ordinary consumption, and that the deadweight loss can be measured by the change in ordinary consumption induced by tax changes. He calculates the deadweight loss using the elasticity of taxable income with respect to the net of tax share, finding that it is substantially larger than traditional estimates of labor supply elasticity. The deadweight loss of the income tax is significantly higher than previously thought, and the paper highlights the importance of considering tax avoidance in assessing the true cost of the income tax.