Federal Personal Income Tax Research Articles

НАЛОГОВЫЕ ВЫЧЕТЫ ПО НАЛОГУ НА ДОХОДЫ ФИЗИЧЕСКИХ ЛИЦ

The subject of the study is the study of tax deductions for personal income tax (personal income tax). It is noted that the federal personal income tax under consideration represents the withdrawal of part of citizens’ income to the budget system of the Russian Federation. The researchers found that the total amount of personal income tax receipts is affected by the amount of tax deductions. It is proposed to tighten administrative measures on personal income tax evasion. This applies primarily to employers who violate the norms of labor legislation. The authors propose to introduce a tax-free minimum for working citizens, as well as to revise the tax legislation in terms of time limits when providing social tax deductions for education.

THE PARALLEL MARCH OF THE GINIS How does taxation relate to inequality, and what can be done about it?

THE PARALLEL MARCH OF THE GINIS How does taxation relate to inequality, and what can be done about it?

Output, Employment, and Price Effects of U.S. Narrative Tax Changes: A Factor-Augmented Vector Autoregression Approach

This paper examines the short- and long-run effects of U.S. federal personal income and corporate income tax cuts on a wide array of economic policy variables in a data-rich environment. Using a panel of U.S. macroeconomic data set, made up of 132 quarterly macroeconomic series for 1959-2018, the study estimates factor-augmented vector autoregression (FAVARs) models where an extended narrative tax changes dataset combined with unobserved factors. The narrative approach classifies if tax changes are exogenous or endogenous. This paper identifies narrative tax shocks in the vector autoregression model using the sign restrictions with Uhlig's (2005) penalty function. Empirical findings show a significant expansionary effect of tax cuts on the macroeconomic variables. Cuts in personal and corporate income taxes cause a rise in output, investment, employment, and consumption; however, cuts in personal taxes appear to be a more effective fiscal policy tool than the cut in corporate income taxes. Real GDP, employment, investment, and industrial production increase significantly and reach their maximum response values two years after personal income tax cuts. The effects of corporate tax cuts have relatively smaller effects on output and consumption but show immediate and higher effects on fixed investment and price levels.

A Further Inquiry into Factors that Influence Federal Personal Income Tax Evasion in the U.S.

ABSTRACT This study identifies factors that may have influenced the degree of aggregate federal personal income tax evasion in the U.S. An established tax evasion model is updated to include the most recent data available and augmented with the addition of heretofore neglected or overlooked explanatory variables. To measure the degree of aggregate tax evasion behaviour, we adopt the percentage of personal taxable income that was unreported to the IRS by using official time series data for the years 1980 through 2016. We incorporate previously resilient variables such as the federal tax rate, the unemployment rate, the audit rate of filed returns by IRS personnel, the penalty interest rate on detected tax evasion, and a measure of real income growth into our study. Each has a statistically significant impact on the degree of aggregate federal personal income tax evasion, consistent with prior literature. As an extension of the literature, we find compelling evidence that age, gender, the average effective state income tax rate, and the percentages of federal personal income tax returns that include Schedule C and/or Schedule A are additional variables that have been largely ignored in previous related studies but appear to have impacted tax evasion behaviour.

Spread between the Moody’s Aaa-Rated Corporate Bond Yield and the Yield on Municipals: Co-integration Analysis

While the research linking interest rates to government deficits is extensive, the impact of other tax-related variables is uncommon. This study seeks to add to the literature on credit markets by exploring the impact of not only the budget deficit but also average effective personal income tax rates and personal income tax evasion as explanatory variables. To the best of our knowledge this study is the first study to recognize the joint importance of all of these fiscal variables. We utilize data covering the post-Bretton Woods period from 1971 through 2016 to analyze the impact of the three variables in order to shed light on the spread between the real interest rate yields on Moody’s Aaa-rated corporate bonds and high quality municipal bonds. Estimations reveal that the higher the average effective federal personal income tax rate, the greater the differential between the yields on corporate bonds and tax-free Municipals. Furthermore, it is found that the higher the adjusted gross income gap, the greater the real yield spread between Moody’s Aaa-rated corporate bonds and high quality municipal bonds. Finally, the greater the primary budget deficit, the greater the spread as well.

An Empirical Analysis of the Effects of Budget Deficits (Total and Primary) and Personal Income Tax Rates on the Ex Post Real Interest Rate Yield on Long-Term U.S. Treasury Bonds

This empirical study adopts an open-economy loanable funds model to investigate the impact of post-Bretton Woods U.S. federal government budget deficits and personal income tax rates on the ex post real interest rate yield on thirty-year Treasury bonds. In this study, the budget deficit is measured in two different ways, the total (“unified”) budget deficit and the primary deficit (the total/unified deficit minus net interest payments). Two different estimation techniques, autoregressive two stage least squares estimation and the ARCH (Autoregressive Conditional Heteroscedasticity) Method, for the 1973-2016 study period provide evidence that the ex post real interest rate yield on thirty-year Treasury bonds has been an increasing function of both federal budget deficit measures (expressed as a percent of GDP) and the maximum marginal federal personal income tax rate. The estimations all imply that elevating either the total/unified or primary federal budget deficit appears to raise the cost of borrowing in the U.S., whereas reducing the maximum marginal personal income tax rate appears to reduce the cost of borrowing. Given the potential effects of longer-term real interest rates on investment in new plant and equipment and overall economic growth, policy-makers should not overlook these findings.

The tax-rate induced bond substitution hypothesis and the traditional textbook treatment of the relationship between tax-free and taxable bond yields

ABSTRACTThis empirical study posits and tests the ‘tax-rate induced bond substitution hypothesis,’ wherein the propensity for bond buyers to substitute tax-exempt municipal bonds for taxable bonds in their portfolios is hypothesized to be an increasing function of the maximum federal personal income tax rate. This substitution acts to elevate the real interest rate yield on taxable bonds while diminishing it on tax-exempt bonds, ceteris paribus. Two measures of real interest rates are included in the present analysis, ex post real interest rate and ex ante real interest rate. Empirical estimations for the 1981–2018 period provide strong support for the hypothesis. They reveal that the real interest rate yield on high-grade tax-exempt municipal bonds is a decreasing function of the maximum marginal federal personal income tax, whereas the real interest rate yield on taxable ten-year Treasury notes is an increasing function of that same tax rate. We examine the implications of this study and the information underlying it for the traditional formulaic textbook treatment of the relationship between yields on bonds whose interest rate payments are taxable versus those whose interest rate payments are tax exempt and find it is not as dependable as the textbooks would have us believe.

Federal aggregate personal income tax evasion/unreported income and its real interest rate yield effects on longer-term treasury debt issues

PurposeThe purpose of this study is to empirically investigate the impact of aggregate federal personal income tax evasion on the real interest rate yield on 10-year Treasury notes, 20-year Treasury bonds and 30-year US Treasury bonds.Design/methodology/approachAn open-economy loanable funds model is developed, with income tax evasion expressly included in the specification in the form of the AGI (adjusted gross income) gap and the ratio of unreported AGI to actual AGI, expressed as a per cent.FindingsThe empirical estimations reveal compelling evidence that income tax evasion thus measured acts to elevate the real interest rate yields on 10-year Treasury notes and both 20-year and 30-year Treasury bonds, raising the possibility of a tax evasion-induced form of “crowding out”.Research limitations/implicationsIdeally, tax evasion data for a longer time period would be very useful.Practical implicationsTo the extent that greater federal personal income tax evasion yields a higher interest rate yield on 10-year, 20-year and 30-year Treasury debt issues, it is likely that the tax evasion will also elevate other interest rates in the economy.Social implicationsHigher interest rates resulting from tax evasion would likely slow-down macroeconomic growth and accelerate unemployment.Originality/valueNeither the tax evasion literature nor the interest rate literature has ever considered the impact of tax evasion behavior on long-term interest rates.

An empirical analysis for the US of the impact of federal budget deficits and the average effective personal income tax rate on the ex post real interest rate yield on ten-year Treasuries

We investigate the impact of federal government budget deficits and federal personal income tax rates on the ex post real interest rate yield on ten-year US Treasury notes. Using autoregressive two-stage least squares estimations for the post-Bretton Woods era, we find that the yield on these Treasury issues has been an increasing function of the federal budget deficit as a percent of GDP, both in the form of the total/unified deficit and the primary deficit, and also an increasing function of the average effective federal personal income tax rate. The estimation reveals that growth in the M2 money supply (relative to GDP) acts to reduce the real interest rate yield on ten-year Treasuries. Consequently, while a growing money supply can help to keep real interest rates on Treasury notes (and hence federal debt service costs) down, policymakers should be sensitive to the fact that both budget deficit increases and tax rate increases can elevate the real interest rate. JEL codes : E43, E62, H62

State-level implications of federal tax policies

The United States federal fiscal policy has differential impact across states. We construct a new quarterly state-level dataset that we use to analyze the impact of unexpected changes in federal personal and corporate income taxes. We find substantial heterogeneity across states, with more than half having no significant response to the tax cuts. In addition, less capital intensive states have larger responses to corporate tax cuts. Although puzzling in standard models, a model with corporate and non-corporate sectors is consistent with this evidence. Overall, our results suggest the importance of variation and reallocation across states in evaluating federal policy.

Reflections on and Inquiry into Unfamiliar as well as Familar Factors that may Influence the Market for Municipal Bonds

This study investigates the impact of various factors on the ex-ante real interest rate yield on high grade municipal bonds. The AR/2SLS estimation implies that this ex ante real interest rate is an increasing function of the ex-ante real interest rate yield on thirty-year Treasury bonds while being a decreasing function of net capital flows. The yield in question also is found to have been negatively impacted by the Depository Institutions Deregulation and Monetary Control Act. Furthermore, the estimation finds that this interest rate measure is a decreasing function of the maximum marginal federal personal income tax rate. In addition, it is found that, in the presence of an interaction term, the ex-ante real interest rate yield on high-grade municipals is an increasing function not only of the budget deficit but also the aggregate tax gap. The policy implications of these results include the need to limit the extent of budget deficits and to also limit the extent of income tax evasion in the U.S., lest there will be significant limitations placed on the ability of towns, cities, counties, and states to create new infrastructure in response to changing demographic and economic circumstances and/or maintain existing infrastructure.

Does a lower (higher) labour force participation rate imply greater (lower) income tax evasion? An exploratory empirical inquiry for the U.S.

ABSTRACTThis exploratory study seeks to add to the income tax evasion literature by investigating a heretofore ignored potential determinant of aggregate federal personal income tax evasion in the U.S., namely, the labour force participation rate. It is hypothesized that the higher (lower) the labour force participation rate, the lower (greater) the degree of tax evasion. The empirical estimation supports this hypothesis, finding that a one unit (one percentage point) increase (decrease) in the labour force participation rate leads to a 9.1% decrease (increase) in income tax evasion. Thus, the declining labour force participation in recent years implies increased tax evasion problems for the U.S.

Impact of federal income tax rates and government borrowing on nominal interest rate yields on tax-free municipal bonds

PurposeThis study investigates the impact of federal income tax rates and budget deficits on the nominal interest rate yield on high-grade municipal tax-free bonds (municipals) in the US. The 58-year study period covers the years 1959 through 2016 and thus is very recent.Design/methodology/approachThe study develops a loanable funds model that allows for various financial market factors. Once developed, the model is estimated by autoregressive two-stage least squares, with a Newey-West heteroskedasticity correction.FindingsThe nominal interest rate yield on municipals is a decreasing function of the maximum marginal federal personal income tax rate and an increasing function of the federal budget deficit (expressed as a per cent of GDP). This yield is also an increasing function of nominal interest rate yields on three- and ten-year treasury notes and expected inflation.Research limitations/implicationsWhen introducing additional interest rates such as treasury bills as explanatory variables, multi-collinearity becomes a serious problem.Practical implicationsThis study indicates that lower maximum federal personal income tax rates and larger federal budget deficits, both act to raise borrowing costs for cities (of all sizes), counties and states across the country. Given the study period of 58 years, these relationships appear to be enduring ones that responsible policy-makers should not overlook.Social implicationsTax reform and debt management need to be conducted in a very circumspect fashion.Originality/valueNo recent study investigating the impact of the two key policy variables in this study has been published.

The Underground Economy in the U.S.A.: Preliminary New Evidence on the Impact of Income Tax Rates (and Other Factors) on Aggregate Tax Evasion 1975-2008

This empirical study seeks to identify determinants of the underground economy in the U.S. in the form of aggregate federal personal income tax evasion over the period 1975-2008, with a specific focus upon the impact of higher federal income tax rates on tax evasion. In this study, we use the most recent data available on aggregate personal income tax evasion, data that are derived from the General Currency Ratio Model and measured in the form of the ratio of unreported AGI to reported AGI. Most other studies of federal income tax evasion for the U.S. do not use data this current. It is found that the impact of increases in the federal income tax rate on aggregate personal income tax evasion may, on balance, be ambiguous, possibly suggesting that the income effect is negative and outweighs the positive substitution effect for the representative taxpayer. It is also found that the degree of aggregate personal income tax evasion may be an increasing function of the percentage of federal personal income tax returns characterized by itemized deductions and a decreasing function of the Tax Reform Act of 1986 (during the first two years of implementation), the ratio of the tax free interest rate yield on high grade municipals to the interest rate yield on ten year Treasury notes, and higher audit rates of filed federal income tax returns (as a measure of risk from tax evasion) by IRS personnel. Finally, unpopular wars may provide a secondary benefit for and therefore act as an inducement for greater tax evasion.

The impact of federal income tax rate cuts on the municipal bond market in the U.S.: A brief exploratory empirical note

Using annualized data for the 1974–2015 period, this study adopts a loanable funds approach to investigate empirically the impact of U.S. federal government fiscal policy of income tax rate cuts on the ex ante real interest rate yield on high grade municipal bonds. Empirical appears to show that the ex ante real interest rate yield on high grade tax free municipal bonds is a decreasing function of the maximum marginal federal personal income tax. Based upon this very preliminary, exploratory study, it follows that reducing federal income tax rates may act to raise the cost of borrowing to cities, counties, and states across the U.S.

UNMASKING LOCAL FISCAL RESPONSES TO FEDERAL TAX DEDUCTIBILITY

This paper analyzes how changes to the deductibility of state and local taxes under the federal personal income tax affect local fiscal outcomes. This paper is the first to study the impact of changing tax prices on local fiscal outcomes while allowing for local heterogeneity in tax incentives at the county level. Exploiting variation at the county level yields a more elastic relationship between tax price and local spending than using coarser units of observation. Simulations suggest that limiting the deduction for state and local taxes would not disproportionately hurt resource-poor areas, making such limits potentially progressive policy options.

ENVIRONMENTAL POLICY FOR FISCAL REFORM: CAN A CARBON TAX PLAY A ROLE?

This paper compares the effects of using revenues from a carbon tax to either reduce the national debt or reduce federal personal or corporate income tax rates. It differs from other analyses by looking at a carbon tax as a purely revenue raising measure, not as an optimal Pigouvian tax or as an instrument to achieve a predetermined reduction in emissions. Thus it addresses the question of whether a carbon tax would be part of an optimal tax policy even if there were no damages to the United States from CO2 emissions. We use a computable general equilibrium model (NERA's NewERA model) that consists of a top-down macro model of the U.S. economy and a detailed bottom-up model of the North American electricity sector. The NewERA model is an integrated energy and economic model that includes a detailed plant-level representation of the electricity sector with an aggregate level representation of the rest of the economy. The analysis shows that using revenues for either debt or tax rate reduction can reduce the welfare losses from a carbon tax; however, the savings from reducing either federal debt or the marginal rates of other distorting taxes are still less than the economic costs imposed by the narrowly based tax on CO2 emissions. The higher the carbon tax, the greater the disparity becomes.

The Underground Economy in the U.S.A: Preliminary New Evidence on the Impact of Income Tax Rates (and Other Factors)on Aggregate Tax Evasion, 1975-2008

This empirical study seeks to identify determinants of the underground economy in the U.S. in the form of aggregate federal personal income tax evasion over the period 1975-2008, with a specific focus upon the impact of higher federal income tax rates on tax evasion. In this study, we use the most recent data available on aggregate personal income tax evasion, data that are derived from the General Currency Ratio Model and measured in the form of the ratio of unreported AGI to reported AGI. Most other studies of federal income tax evasion for the U.S. do not use data this current. It is found that the impact of increases in the federal income tax rate on aggregate personal income tax evasion may, on balance, be ambiguous, possibly suggesting that the income effect is negative and outweighs the positive substitution effect for the representative taxpayer. It is also found that the degree of aggregate personal income tax evasion may be an increasing function of the percentage of federal personal income tax returns characterized by itemized deductions and a decreasing function of the Tax Reform Act of 1986 (during the first two years of implementation), the ratio of the tax free interest rate yield on high grade municipals to the interest rate yield on ten year Treasury notes, and higher audit rates of filed federal income tax returns (as a measure of risk from tax evasion) by IRS personnel. Finally, unpopular wars may provide a secondary benefit for and therefore act as an inducement for greater tax evasion. JEL Codes: G18, G28, H26 Keywords: tax evasion; substitution effect; income effect; incentives; disincentives

Where Has The Currency Gone? And Why? The Underground Economy And Personal Income Tax Evasion In The U.S., 1970-2008

Unaccounted for currency in the U.S. is argued to reflect the presence of widespread income tax evasion. This empirical study seeks to identify determinants of the underground economy in the U.S. in the form of federal personal income tax evasion over the period 1970-2008. In this study, we use the most recent data available on personal income tax evasion, data that are derived from the General Currency Ratio Model and measured in the form of the ratio of unreported AGI (adjusted gross income) to reported AGI. Other studies of federal income tax evasion for the U.S. are dated and do not use data this current. It is found that personal income tax evasion was an increasing function of the maximum marginal federal personal income tax rate, the percentage of federal personal income tax returns characterized by itemized deductions, and unpopular military engagements, in this case, the War in Iraq, and a decreasing function of the Tax Reform Act of 1986 (during its first two years of being implemented), the ratio of the tax free interest rate yield on high grade municipals to the interest rate yield on ten year Treasury notes (as a measure of the incentive effect of a better return to tax avoidance, which is legal), and higher audit rates of filed federal income tax returns (as a measure of risk from tax evasion) by IRS personnel.

A Tale of Three Taxpayers

How have federal personal income tax obligations evolved over the past 60 years? A common perception is that the federal income tax burden on the poor has increased while the tax burden on the rich has declined. This study focuses on three archetypical households. The first consists of two children and a single mother earning 125 percent of the current poverty line. The second consists of two children and a married couple whose income is close to the current median household income. The third consists of two children and a married couple whose income is just below that of the top 1 percent of current earners. All three households maintain constant inflation-adjusted income over time. The changes in relative and absolute federal tax liabilities measured in 1953, 1973, 1993, and 2013 are informative and somewhat surprising?and cannot be summarized in any simple slogan. In absolute dollars the rich and poor seem to have fared best, while in relative terms the poor have benefitted disproportionately.