The paper by Martin Feldstein, titled "Tax Avoidance and the Deadweight Loss of the Income Tax," argues that traditional methods of analyzing the distorting effects of the income tax significantly underestimate both the total deadweight loss and the incremental deadweight loss from increases in income tax rates. The author highlights that these traditional frameworks ignore the impact of higher income tax rates on tax avoidance through changes in compensation forms (e.g., employer-paid health insurance) and consumption patterns (e.g., owner-occupied housing). Feldstein demonstrates that the deadweight loss due to increased use of exclusions and deductions can be calculated by treating them as a single Hicksian composite good, where the relative prices of leisure, excludable income, and deductible consumption remain fixed. Using TAXSIM, a microsimulation model calibrated to 1994 data, Feldstein finds that the deadweight loss per dollar of revenue from using the income tax instead of a lump-sum tax is more than twelve times Harberger's classic estimate. A marginal increase in tax revenue through proportional rises in personal income tax rates involves a deadweight loss of nearly two dollars per incremental dollar of revenue. Repealing the 1993 increase in tax rates for high-income taxpayers would reduce the deadweight loss by $24 billion while increasing tax revenue. The paper also discusses the elasticity of taxable income with respect to the net-of-tax share, estimating it to be around 1.04, and provides detailed calculations of the deadweight loss under different scenarios, including a 10% rise in all income tax rates.The paper by Martin Feldstein, titled "Tax Avoidance and the Deadweight Loss of the Income Tax," argues that traditional methods of analyzing the distorting effects of the income tax significantly underestimate both the total deadweight loss and the incremental deadweight loss from increases in income tax rates. The author highlights that these traditional frameworks ignore the impact of higher income tax rates on tax avoidance through changes in compensation forms (e.g., employer-paid health insurance) and consumption patterns (e.g., owner-occupied housing). Feldstein demonstrates that the deadweight loss due to increased use of exclusions and deductions can be calculated by treating them as a single Hicksian composite good, where the relative prices of leisure, excludable income, and deductible consumption remain fixed. Using TAXSIM, a microsimulation model calibrated to 1994 data, Feldstein finds that the deadweight loss per dollar of revenue from using the income tax instead of a lump-sum tax is more than twelve times Harberger's classic estimate. A marginal increase in tax revenue through proportional rises in personal income tax rates involves a deadweight loss of nearly two dollars per incremental dollar of revenue. Repealing the 1993 increase in tax rates for high-income taxpayers would reduce the deadweight loss by $24 billion while increasing tax revenue. The paper also discusses the elasticity of taxable income with respect to the net-of-tax share, estimating it to be around 1.04, and provides detailed calculations of the deadweight loss under different scenarios, including a 10% rise in all income tax rates.