Income Reporting and the Phaseout of Exemptions

This study investigates taxpayer behavior in response to the phaseout of exemptions. This provision implicitly creates fifty $2,500 intervals based on the adjusted gross income (AGI) of high-income taxpayers. Certain individuals can save taxes by adjusting AGI to fall near the top of the previous in...

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Bibliographic Details
Published in:Public finance review 2005-09, Vol.33 (5), p.543-574
Main Author: Enis, Charles R.
Format: Article
Language:English
Subjects:
Data analysis
Economic behaviour
Empirical research
Exemption
Exemptions
Gross income
Hypotheses
Income tax
Income taxes
Individual behaviour
Public finance
Studies
Tax collection
Tax exemptions
Tax returns
Taxation
Taxpayers
U.S.A
United States
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Summary:This study investigates taxpayer behavior in response to the phaseout of exemptions. This provision implicitly creates fifty $2,500 intervals based on the adjusted gross income (AGI) of high-income taxpayers. Certain individuals can save taxes by adjusting AGI to fall near the top of the previous interval. Thus, the distribution of their reported AGI is hypothesized to be disproportionately greater near the top of these intervals. This study uses tax return data with univariate tests to detect this “bunching effect” and logit models to profile taxpayer attributes that are associated with this behavior. Revenue and efficiency estimates are also addressed. Understanding responses to phaseouts is important as the tax system uses such to unobtrusively raise revenues and target incentives. This bunching effect was observed for the third and fourth years following enactment.However, no bunching was observed for the first two years or for the fifth year following enactment.
ISSN:1091-1421
1552-7530
DOI:10.1177/1091142105278643