Doing Too Much: The Standard Deduction and the Conflict Between Progressivity and Simplification

Abstract

In U.S. federal income tax, the standard deduction, along with the personal exemptions, provides taxpayers with a minimum amount of untaxed income, effectively creating a ―zero bracket amount.‖ For historical and political reasons, however, the standard deduction also operates as a simplified substitute for the itemized deductions, such as the deductions for extraordinary medical expenses, charitable contributions, and home mortgage interest. This seemingly reasonable compromise in fact leads to substantial, and surprising, conceptual complexity. In particular, close analysis of each of the two roles shows that their effects, and related criticisms, are often contradictory, which in turn makes it difficult, if not impossible, to have coherent policy debates regarding the proper roles of the standard deduction and the personal deductions. This flawed compromise between progressivity and simplification is not necessary. We can replace the standard deduction with a true, independent zero bracket amount and a floor under the itemized deductions while staying revenueand distribution-neutral. This would effectively divorce the two roles of the standard deduction—zero bracket amount and simplification of the itemized deductions—leading to more coherence in individual income taxation and giving more flexibility to policymakers. This article proposes further to disaggregate the single floor under the itemized deductions into multiple, independent floors under each itemized deduction. This also would lead to greater coherence and flexibility in tax system design. While creating multiple floors would marginally increase complexity for some taxpayers, the costs of such complexity are justified in light of the benefits of more accuracy and coherence.  Associate Professor of Law, Georgetown University Law Center. J.D., Harvard Law School, 2006; A.B., Harvard College, 1998. I am grateful for helpful comments and suggestions from Jennifer BirdPollan, Joshua Blank, Lilian Faulhaber, Victor Fleischer, Daniel Halperin, Louis Kaplow, and Alvin Warren, and also to participants in workshops at Harvard Law School, Georgetown University Law Center, Syracuse University College of Law, University of Washington School of Law, Tulane University Law School, Seton Hall Law School, Rutgers School of Law-Newark, Louisiana State University Law Center, and the Law & Society 2010 Conference. 204 COLUMBIA JOURNAL OF TAX LAW [Vol.2:203