The Compliance Cost of Itemizing Deductions: Evidence from Individual Tax Returns
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.
|Date of creation:||Mar 1988|
|Publication status:||published as The American Economic Review, Vol. 79, No. 5, pp. 1224-1232, (December 1989).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Joel Slemrod & Nikki Sorum, 1984. "The Compliance Cost of the U.S. Individual Income Tax System," NBER Working Papers 1401, National Bureau of Economic Research, Inc.
- Daniel R. Feenberg & Harvey S. Rosen, 1986. "State Personal Income and Sales Taxes, 1977–1983," NBER Chapters,in: Studies in State and Local Public Finance, pages 135-186 National Bureau of Economic Research, Inc.