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The Compliance Cost of Itemizing Deductions: Evidence from Individual Tax Returns

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  • Pitt, Mark M
  • Slemrod, Joel

Abstract

The resource cost of operating the income tax system is large, totaling as much as seven to eight percent of revenue raised. One source of this cost is the system of itemized deductions, which can require extensive record keeping and calculation. This paper estimates the resource cost of itemizing deductions. In contrast to previous studies of compliance cost which rely an survey evidence, we infer this evidence from data reported on tax returns which suggest that there exists taxpayers who would save money by itemizing but who choose not to. We find that in 1982 the private cost of itemizing totaled $1.44 billon, or $43 per itemizing taxpayer. The compliance cost dissuaded from itemizing aver 650,000 taxpayers who would have thereby saved taxes, causing an extra tax liability of nearly $200 million. Increasing the standard deduction by $1,000 would save $100 million in resources that would otherwise have been devoted to itemizing.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 79 (1989)
Issue (Month): 5 (December)
Pages: 1224-32

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Handle: RePEc:aea:aecrev:v:79:y:1989:i:5:p:1224-32

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Cited by:
  1. Christian Gillitzer & Peer Ebbesen Skov, 2013. "Evidence on Unclaimed Charitable Contributions from the Introduction of Third-Party Information Reporting in Denmark," EPRU Working Paper Series 2013-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  2. Edgar L. Feige, 2001. "Taxation for the 21st Century: The Automated Payment Transaction (APT) Tax," Public Economics 0106001, EconWPA.
  3. Tatiana Damjanovic & David Ulph, 2007. "Tax Progressivity, Income Distribution and Tax Non-Compliance," Discussion Paper Series, Department of Economics 200712, Department of Economics, University of St. Andrews.
  4. Das-Gupta, Arindam, 2004. "Compliance cost of the personal income tax in India, 2000-01: Preliminary estimates," Working Papers 04/9, National Institute of Public Finance and Policy.
  5. Pablo Serra, 2000. "Measuring the Performance of Chile's Tax Administration," Documentos de Trabajo 77, Centro de Economía Aplicada, Universidad de Chile.
  6. Franz W. Wagner, 2006. "Was bedeutet Steuervereinfachung wirklich?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(1), pages 19-33, 02.
  7. repec:ind:nipfwp:09 is not listed on IDEAS
  8. Eichfelder, Sebastian & Schorn, Michael, 2009. "Tax compliance costs: a business administration perspective," Discussion Papers 2009/3, Free University Berlin, School of Business & Economics.
  9. De Fiore, Fiorella, 2000. "The optimal inflation tax when taxes are costly to collect," Working Paper Series 0038, European Central Bank.
  10. Alm, James, 1996. "What Is an "Optimal'"Tax System?," National Tax Journal, National Tax Association, vol. 49(1), pages 117-33, March.
  11. Blaufus, Kay & Bob, Jonathan & Hundsdoerfer, Jochen & Kiesewetter, Dirk & Weimann, Joachim, 2013. "Decision heuristics and tax perception – An analysis of a tax-cut-cum-base-broadening policy," Journal of Economic Psychology, Elsevier, vol. 35(C), pages 1-16.

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