We examine the responses of high-income taxpayers to the increases in the top income tax rates under the Omnibus Budget Reconciliation Act of 1993. We use a large panel of tax returns spanning 1987 to 1996 to estimate the elasticity of taxable income using a difference-in-differences approach. We estimate that the ETI is roughly 0.3 for high-income taxpayers, but that there was significant intertemporal income-shifting ahead of tax rate increases that were easily anticipated. Failing to account for this shifting response produces a much higher ETI estimate of 0.7. We find changes in the types of income reported by high-income households: decreases in wage income, coupled with increases in capital gains and S corporation income which both received preferential tax treatment. While all high-income households re-timed their taxable income ahead of the tax increases, this effect is even stronger for executives. There is also suggestive evidence that executives of S corporations responded, reducing their wage and partnership income and increasing S corporation income, to avoid the uncapping of the employment tax base.

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