IDEAS home Printed from https://ideas.repec.org/p/tul/wpaper/1306.html
   My bibliography  Save this paper

Automobiles, Tax Mischaracterizations, and the Multibillion Dollar Price Tag

Author

Listed:
  • James Alm

    () (Department of Economics, Tulane University)

  • Jay A. Soled

    () (Department of Accounting and Information Systems, Rutgers Business School)

Abstract

The United States has more automobiles per capita than any other country in the industrial world, and taxpayers use those automobiles for business and nonbusiness purposes. The former classification affords favorable individual income tax treatment, while the latter does not. However, to secure favorable tax treatment, taxpayers often mischaracterize their nonbusiness automobile expenses as business in nature, and they are able to do so with almost complete impunity. Using tabulations of Internal Revenue Service data, we demonstrate that such mischaracterizations result in a significant annual cost in terms of forfeited tax revenue. In addition, using elementary economic theory, we illustrate how taxpayer mischaracterizations result in additional demand for gasoline, which likely raises overall gasoline prices for all consumers. On the basis of our findings, we contend that immediate reforms are needed, and we present several legislative options for Congress to consider. We also argue that the experience of automobile expenses carries larger lessons for other types of tax expenditures, lessons that have relevance to the ongoing discussions about comprehensive tax reform measures.

Suggested Citation

  • James Alm & Jay A. Soled, 2013. "Automobiles, Tax Mischaracterizations, and the Multibillion Dollar Price Tag," Working Papers 1306, Tulane University, Department of Economics.
  • Handle: RePEc:tul:wpaper:1306
    as

    Download full text from publisher

    File URL: http://econ.tulane.edu/RePEc/pdf/tul1306.pdf
    File Function: First Version, February 2013
    Download Restriction: no

    More about this item

    Keywords

    tax compliance; individual income tax; itemized deductions;

    JEL classification:

    • H0 - Public Economics - - General
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tul:wpaper:1306. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rodrigo Aranda Balcazar). General contact details of provider: http://edirc.repec.org/data/detulus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.