Low-income Taxpayers Research Articles

Enhancing VAT compliance in the retail industry: The role of socio-economic determinants and tax knowledge moderation

Despite tax being a fundamental method to redistribute wealth and achieve a sustainable economic and social system, tax agencies and institutions in most countries are struggling with low tax collections. This issue is often attributed to the level of compliance among taxpayers. To gain more insight into this problem, a study was conducted to examine how socio-economic determinants such as probability of detection, tax complexity, tax penalty, tax sanctions, tax ethics, tax justice, government spending, and tax services quality impact VAT compliance decisions. The study drew a random sample of 770 retail industry participants from Jordan, an Arabic country, for a self-administered survey. Smart-PLS structural equation modeling was used to analyze and estimate the compliance model. The results indicated that all proposed direct relationships were supported, and the interactions between tax knowledge and the socio-economic determinants on VAT compliance were found to be significant. The findings of this research can be useful for policymakers and institutions responsible for taxpayers' communities to understand the role of tax knowledge in VAT compliance in the retail industry. The study emphasizes the significance of instilling tax knowledge, social and moral values among VAT payers, establishing an equitable system, and launching awareness programs in Jordanian society. Additionally, it contributes to existing literature by confirming a practical compliance model rooted in the socio-economic theory of regulatory compliance. This model incorporates the moderating effect of tax knowledge within socio-economic aspects of VAT compliance. By understanding the importance of tax knowledge, policymakers and institutions can develop effective strategies to boost VAT funds and improve compliance in the retail industry. This can ultimately lead to increased government revenues without placing an undue economic burden on lower-income taxpayers.

While Poor and Lower Income Taxpayers Are Forced to Subsidize the Lifestyle of Well-To-Do Elites, Evidence in The Current Research Suggested No Reliable Data Have Ever Existed for Scientific Analysis That Suggested Pollution or Manmade Contribution to Climate Change: Presenting Eddison Walters Climate Change Research Deception and Misinformation Theory

There is no debate the climate on earth is changing but research conducted by Walters and Djokic (2022) presented evidence that established, studies that attribute pollution or manmade cause and effect in climate change research are based on junk science. The study presented evidence that suggested, scientific data analysis linking manmade causes or pollution to climate change does not exist. Walters and Djokic Quantitative Analysis Factor Distortion Theory expanded Eddison Walters Modern Economic Analysis Theory which was developed by Walters (2020A) and was expanded by Walters and Djokic (2022). Walters and Djokic Quantitative Analysis Factor Distortion Theory which was explained in Walters and Djokic (2022) resulted in proposed changes by the researchers to restore the reliability and creditability of data analysis in scientific research. The researchers called for the implementation of changes to American Psychological Association (APA) standards aimed at avoiding junk science such as research that incorrectly links pollution or manmade causes to climate change without scientific evidence based on scientific data analysis from being accepted into the body of literature as scientific research (Walters, 2020: Walters, 2021; Walters & Djokic, 2022). The foundation of Walters and Djokic Quantitative Analysis Factor Distortion Theory is grounded in the principle, of "all else being equal", which has been a long-established principle for the scientific analysis of data to ensure unknown factors do not distort the results of data analysis. The current study applied the principles of Walter and Djokic Quantitative Analysis Factor Distortion Theory for evaluating the creditability of directing taxpayer resources to green energy policies aimed and reversing climate change. The current study also considered what segment of the population benefits the most from green energy policies and what segment of the population shoulders the cost burden. The current study considered the opportunity cost of allocating taxpayer resources to implement green energy policy by considering challenges facing American taxpayers where the results of investments have quantifiable scientific measurements for successful implementation rather than committing resources to implement green energy policy with no quantifiable scientific measurements for successful implementation

Accommodating the "Low-Income" in a Cash-Flow or Consumed Income Tax World

I presented an outline of this paper to a meeting of the Tax Structure and Simplification Committee of the Tax Section of the American Bar Association in August, 1993, and a draft of the paper to a University of Virginia law school workshop.Copyright © 1995 by George K. Yin. All rights reserved.This article concerns a tax policy issue of keen current interest: the possible replacement of the income tax with a broad-based tax on consumption. The leadership of the new 104th Congress has promised early scrutiny of consumption tax proposals.The weak link of most consumption tax plans relates to how they would distribute the tax burden across income classes. Critics charge that consumption taxes are regressive or at least not as progressive as the existing income tax. Many theorists believe, however, that one form of broad-based consumption tax, a cash-flow or consumed income tax, is immune to such criticism because it is an individualized consumption tax and could be implemented in a manner very similar to the income tax. Supporters of the cash-flow tax assert that it is flexible enough to attain any desired degree of progressivity.In this article, I examine that proposition. Focusing on the impact of the cash-flow tax on low-income taxpayers, I conclude that it would be surprisingly difficult to fashion a cash-flow tax as redistributive at the lower end of the income scale as the current income tax system while still preserving the asserted advantages of the cash-flow tax. Although it may still be advisable to move towards a cash-flow tax system, it is important for policymakers to recognize the inherent limitations of such a system for achieving progressivity at the lower end of the income spectrum.

The Widening Gap Under the Internal Revenue Code: The Need for Renewed Progressivity

“I have never viewed taxation as a means of rewarding one class of taxpayers or punishing another. If such a point of view ever controls our public policy, the traditions of freedom, justice and equality of opportunity, which are the distinguishing characteristics of our American civilization, will have disappeared and in their place we shall have class legislation with all its attendant evils.” Andrew Mellon (1924)The words written by Andrew Mellon more than 75 years ago represent an idealistic view of the tax system. Despite the ideas expressed by Mr. Mellon, it is difficult to devise a tax scheme that conforms to his standards. Our present scheme of taxation is intended to promote vertical equity, which means that the higher income taxpayer should pay a higher level of taxes based on an abilityto-pay concept. In theory, this objective is met by the progressive tax structure imposed under the Code. Arguably, a progressive tax system is inconsistent with the principles expressed by Mellon because of the purported penalty levied against high-income taxpayers in the form of inflated tax rates and the reward bestowed on low-income taxpayers in the form of lower tax rates. In reality, a progressive tax system does not reward or punish one class of taxpayers over another, but it is necessary to ensure that taxpayers do not pay more tax dollars to finance the government than they can afford. A progressive tax scheme is also necessary to enable every taxpayer to retain sufficient income to live above the poverty threshold. To the extent that a taxpayer lives below the poverty threshold, that taxpayer should not be required to pay income taxes. The current tax scheme is only partially successful in preventing taxpayers’ after-tax income from falling below the poverty threshold.

The Role of Offset in the Collection of Federal Taxes

The legal principle of offset has played a key role in debt collection by private parties for centuries. In 2021, offset continues to play an equally essential role in the United States government’s collection of debts owed to it, accounting for billions of dollars in funds taken from outgoing payments. The right of offset arises when two parties owe each other debts. The party asserting offset can subtract what is owed to them from what they owe, allowing the parties to avoid an unnecessary transaction. Offset thus makes intuitive sense, simplifying two payment flows into one. But offset becomes far more complex when one of the parties is the federal government, which is unlike a traditional private creditor in important ways. Offset has perhaps its largest impact in the tax system, where Congress has legislated that the Internal Revenue Service (the “Service”) has the authority (and sometimes, the mandate) to offset tax refunds. Refunds are commonly offset when a taxpayer owes prior year tax liabilities, other agency debts (e.g., student loans), state taxes or past-due child support. Despite its frequent use by the Service, offset is subject to minimal procedural protections, likely due to its origin in longstanding common law doctrine. Unlike other forms of tax collection, offset does not carry a right to prepayment judicial review in Tax Court. Nor does offset require the Service to issue a notice to the taxpayer prior to taking collection action. Courts also treat offset inconsistently when the applicable taxpayer/debtor is protected by a collection stay under Title 26 or Title 11, allowing offset in some scenarios and denying it in others. Finally, Congress and the Service have often failed to use their authority to make offset more equitable, particularly as applied to low-income taxpayers. The Service has a limited administrative remedy available for taxpayers to affirmatively request bypass from the offset of their refund to a tax debt. But the remedy is little-publicized, little-used and difficult to administer. During the COVID-19 pandemic and recession, Congress legislatively protected advance stimulus payments from some forms of offset. But Congress failed to make that protection expansive or to extend it to conventional tax refunds, both of which would have put needed funds in the hands of millions of taxpayers during an economic crisis. Similarly, the Service declined to exercise its statutory discretion to systemically suspend offset of conventional tax refunds to past tax liabilities. These issues extend to payments of the Earned Income Tax Credit (EITC), which are subject to offset. Both Congress and the Service have failed to acknowledge the EITC’s unique nature as a type of public benefit, treating it instead as a conventional tax refund subject to offset. This disproportionately hurts the low-income taxpayers, and their children, that the EITC was enacted to benefit. I argue that policymakers should pay closer attention to offset and make the necessary changes to apply it in a more equitable and logical manner.

Post-purchase Federal Financial Aid: How (in)Effective is the IRS's Student Loan Interest Deduction (SLID)in Reaching Lower-Income Taxpayers and Students?

Federal financial aid policies for higher education may be classified based on their “for-purchase” and “post-purchase” natures. The former include grants, loans, and workstudy and intend to help students finance or afford college attendance, persistence, and graduation. Post-purchase policies are designed to minimize financial burdens associated with having invested in college attendance and are granted as tax incentives/expenditures. One of these expenditures is the IRS’s Student Loan Interest Deduction (SLID)—which offers up to $2500 as an adjustment for taxable income based on having paid interest on student loans and has an annual cost of $12.81 billion—about 45.7% of the Pell grant cost. Despite this high cost, SLID has remained virtually unstudied. Accordingly, the study’s purpose is to assess how (in)effective SLID may be in reaching lower-income taxpayers. To address this purpose, we relied on an innovative analytic framework “multilevel modelling with spatial interaction effects” that allowed controlling for contextual and systemic observed and unobserved factors that may both affect college participation and may be related with SLID disbursements over and above income prospects. Data sources included the IRS, ACS, FBI, IPEDS, and the NPSAS:2015–2016. Findings revealed that SLID is regressive at the top, wealthier taxpayers and students attending more expensive colleges realize higher tax benefits than lower income taxpayers and students. Indeed, 75% of community college students were found to not be eligible to receive SLID—data and replication code (https://cutt.ly/COyfdKC) are provided. Is this the best use of this multibillion tax incentive? Is SLID designed to exclude the poorest, neediest students? A policy similar to Education Credits, focused on outstanding debt rather than on interest, that targets below-poverty line students with up to $5000 in debt, would represent a true commitment, and better use of public funds, to close socioeconomic gaps, by helping those more prone to default.

Policy Proposal: Modifying the Federal Earned Income Tax Credit to Better Help Households with One or No Dependents

This paper discusses four recommendations to improve the federal Earned Income Tax Credit, (EITC), which effectively acts as a wage boost for very-low-income and low-income workers. The credit amount varies tremendously depending on the number of dependents one has. This discrepancy is the paper’s main focus. This paper finds that the EITC’s failure to significantly help taxpayers without dependents, among other challenges, limits its ability to fulfill the program’s goals of incentivizing work and reducing poverty. The four recommendations on average would expand the availability and amount of the credit for most lower-income taxpayers. A conventional economic analysis suggests that these changes would likely incentivize work for many (though not all) affected individuals, increase consumer spending, reduce poverty, and increase equity. In a somewhat limited manner, this paper recommends the set of changes for enactment.

Do income tax breaks for the elderly affect economic growth?

AbstractIncome tax breaks for elderly taxpayers are sizable, widespread, and potentially affect growth through migration and other behaviors. We provide the first investigation into the growth effects of differential tax policy by age, taking a multi‐pronged empirical approach to US state‐level data since 1977. Some analyses include panel error‐correction models combined with variation in state‐level policies over time. Alternative analyses use how changes in federal tax law manifest at the state‐level. Results suggest that taxes on lower income taxpayers, of any age, decrease growth the most, while taxing the high income elderly—those targeted recently—has little effect.

Highways, Market Access and Spatial Sorting

Abstract We design a parsimonious spatial equilibrium model featuring workers embodied with heterogeneous skills and non-homothetic preferences. In equilibrium, locations with improved commuting access become relatively more attractive to high-income earners. We empirically analyse the effects of the construction of the Swiss highway network between 1960 and 2010 on the population size and composition of municipalities. We find that the advent of a new highway access led to a long-term 24% increase in the share of top-income taxpayers and a 8% decrease in the share of low-income taxpayers, impacting segregation by income. Highways also contributed to job and residential urban sprawl.

The Role of Offset in the Collection of Federal Taxes

The legal principle of offset has played a key role in debt collection by private parties for centuries. In 2021, offset plays an equally essential role in the United States government’s collection of debts owed to it, accounting for billions of dollars in funds taken from outgoing payments. The right of offset arises when two parties owe each other debts. The party asserting offset can subtract what is owed to them from what they owe, allowing the parties to avoid an unnecessary transaction. Offset thus makes intuitive sense, simplifying two payment flows into one. But offset becomes far more complex when one of the parties is the federal government, which is unlike a traditional private creditor in important ways.Offset has perhaps its largest impact in the tax system, where Congress has legislated that the Internal Revenue Service (the “Service”) has the authority (and sometimes, the mandate) to offset tax refunds. Refunds are commonly offset when a taxpayer owes prior year tax liabilities, other agency debts (e.g., student loans), state taxes, or past due child support. Despite its frequent use by the Service, offset is subject to minimal procedural protections, likely due to its origin in longstanding common law doctrine. Unlike other forms of tax collection, offset does not carry a right to prepayment judicial review in Tax Court. Nor does offset require the Service to issue a notice to the taxpayer prior to taking collection action. Courts also treat offset inconsistently when the applicable taxpayer/debtor is protected by a collection stay under Title 26 or Title 11, allowing offset in some scenarios and denying it in others.Finally, Congress and the Service have often failed to use their authority to make offset more equitable, particularly as applied to low-income taxpayers. The Service has a limited administrative remedy available for taxpayers to affirmatively request bypass from the offset of their refund to a tax debt. But the remedy is little-publicized, little-used, and difficult to administer. During the COVID-19 pandemic and recession, Congress legislatively protected advance stimulus payments from some forms of offset. But Congress failed to make that protection expansive or to extend it to conventional tax refunds, both of which would have put needed funds in the hands of millions of taxpayers during an economic crisis. Similarly, the Service declined to exercise its statutory discretion to systemically suspend offset of conventional tax refunds to past tax liabilities. These issues extend to payments of the Earned Income Tax Credit (EITC), which are subject to offset. Both Congress and the Service have failed to acknowledge the EITC’s unique nature as a type of public benefit, treating it instead as a conventional tax refund subject to offset. This disproportionately hurts the low-income taxpayers, and their children, that the EITC was enacted to benefit. We argue that policymakers should pay closer attention to offset and make the necessary changes to apply it in a more equitable and logical manner.

Impoverishment by Taxation

Viewed in the aggregate, the U.S. fiscal system is progressive, reduces inequality, and cuts poverty. The system improves on market outcomes by transferring income from rich to poor. Yet this bird’s eye view rings hollow on the ground, where millions of low-income taxpayers across the United States are made poor or poorer by paying their state and federal taxes. In truth, while the U.S. fiscal system may be broadly equalizing and poverty reducing, for many struggling households, it is impoverishing. This Article offers a new way to measure taxation of low-income households in the United States, presenting a concept called fiscal impoverishment. Taxpayers are fiscally impoverished when they are made poor or poorer by paying state and federal taxes, after accounting for the offsetting cash or near-cash public benefits they receive. Distinct from the aggregate and anonymous measures by which we typically assess our tax and transfer system, fiscal impoverishment is dynamic and individualized. It highlights individual human dignity and implicates the economic responsibilities of the state vis-a-vis low-income taxpayers. In addition to introducing the concept, the Article sketches the scope of fiscal impoverishment throughout the United States and recommends adopting impoverishment analysis to guide tax reform at all levels of government. Using stylized households, it explores net tax burdens at various income levels across all fifty states. In combination with U.S. Treasury and Census data, this work reveals that fiscal impoverishment is significant—affecting millions of households—and highly variable—based on a patchwork of federal and state tax and transfer programs. Patterns of impoverishment track familiar safety-net fault lines based on family structure, employment, immigration status, and state of residence. Finally, finding that such impoverishment exists, the Article provides specific reforms and a framework for rethinking taxation of poor households.

Introduction of the personal tax-free allowance in Russia and its budget implications

The social problem of poverty can be mitigated by introduction of a personal tax-free allowance. In this paper the likely effects that a personal tax-free allowance will have on the Russian budget is investigated. It has been assumed that a tax-free allowance will hit regional budgets because they depend greatly on income tax revenue. The indicated effects were estimated by applying a personal tax-free allowance to the data on economic conditions in 2019. Rosstat data on population, poverty, wages and gross regional product and Federal Tax Service data on the number of taxpayers and personal income tax revenues were used. For the purpose of the paper, two scenarios were calculated. In the first scenario, a zero personal income tax rate is applied to wages below the minimum cost of living. We found that under this scenario the consolidated budget of Russia loses over 1 trillion rubles while regional tax revenues reduce by more than 10%. In the second scenario, citizens whose income is below the minimum cost of living are exempt from personal income tax. We found that under this scenario regional tax revenues would be reduced by 1-5%. In both cases the introduction of the personal tax-free allowance puts greater pressure on regions that critically depend on the personal income tax receipts. It was concluded that the negative effect of an introduction of a personal tax-free allowance would be greater, the greater the prevalence of low-income taxpayers in a region. Also considerable regional disparities create a risk that such tax reform will deepen regional inequality and be disruptive for the Russian budgetary system.

ПОДАТОК НА ДОДАНУ ВАРТІСТЬ В УКРАЇНІ: ПОТОЧНИЙ СТАН ТА ШЛЯХИ РЕФОРМУВАННЯ

The article explores the theoretical and methodological foundations of the system of taxation by value-added tax in Ukraine. The economic essence of the value-added tax is determined. The current method of taxation by value-added tax in Ukraine, as well as the impact of this tax on the level of revenues of the state budget of Ukraine is analyzed. A number of examples of international experience in regulating the system of taxation by value-added tax are given. It is established that the current model of recovery of value-added tax has a number of shortcomings, which relate, first of all, to a significant artificial overestimation of household consumption expenditures. In order to eliminate the shortcomings, the concept of reforming the value added-tax in Ukraine is proposed, which provides for the introduction of differentiated rates of this tax depending on the group of goods and services. Value-added tax is a national indirect tax that is accrued and paid in accordance with section V of the Tax Code of Ukraine. Value-added tax is included in the price of goods and services and is actually paid by the end user. Value-added tax aims exclusively at the fiscal function and actually leads to a violation of the law of supply and demand. In Ukraine, value-added tax today is the main source of budget revenues (more than 35% of total tax revenues), which does not contribute to the economic growth of the country. The basic value-added tax rate in Ukraine is 20%, which roughly coincides with the EU countries, but does not take into account the relatively low level of purchasing power of the population in the country. The concept of reforming the value-added tax system in Ukraine provides for the creation of differentiated tax rates depending on the group of goods and services – the object of taxation on the basis of the elasticity of their demand for income, as well as the abolition of the preferential rate of 14% for operations for the sale of agricultural products. The main goal of such reform of the value-added tax in Ukraine is to reduce the tax burden for low-income taxpayers while minimizing the reduction of tax revenues to the state budget of Ukraine.

The Marriage Tax Penalty in 2019

Many people believe Congress enacted legislation to eliminate the Marriage Tax Penalty for low income taxpayers. This paper investigates this belief and finds though Congress has enacted legislation to reduce or eliminate the Marriage Tax Penalty, many low income taxpayers still suffer from a substantial Marriage Tax Penalty. In 2019, a married couple with two children where each spouse earned $18,000 incurred a Marriage Tax Penalty of $$3,584.00. This represents about 10% of their total income

Tax Complexity and Technology

The federal income tax code has become increasingly complex over time with the implication that many taxpayers no longer understand the connection between their life decisions and their taxes. Some commentators have suggested that increasing computational complexity may be attributable in part to the proliferation of tax preparation software that renders such complexity manageable at filing time, but otherwise does nothing to mitigate the “black box” nature of the tax system. While such complexity and opacity undercut explicit incentives embedded in the Code, make planning more difficult, and undermine political accountability for taxes, they may also reduce the inefficient distortion or deadweight loss of the income tax, particularly with respect to higher-income taxpayers. This Article argues that technology represents a potential response to tax complexity and opacity as well as a contributing factor. It argues that tax planning software can and likely will be used to restore “functional transparency” to the Code, for good or bad, alerting taxpayers to explicit incentives, allowing taxpayers to easily determine the tax consequences of their life decisions, and providing a means for improving fiscal citizenship, but also highlighting tax burdens in such a way as to increase deadweight loss. This Article also makes the case for government provision of planning software targeted at lower-income taxpayers in order to level the planning playing field and improve the take-up of tax incentives by this population, while avoiding facilitating social welfare reducing tax planning by higher-income taxpayers.

КЛАССИФИКАЦИЯ ДОХОДОВ ФИЗИЧЕСКИХ ЛИЦ НА ПРЯМЫЕ И КОСВЕННЫЕ КАК МЕТОД УВЕЛИЧЕНИЯ ИНВЕСТИРОВАНИЯ В ЭКОНОМИКУ РОССИИ

Currently, much attention is paid to the taxation of individuals and their income on the territory of the Russian Federation and abroad. The study examines the scale of tax rates of personal income: flat and progressive, which in turn contribute to the formation of low-income and high-income taxpayers. The article presents the classification of income of individuals from sources in Russia: direct and indirect. Direct income is the income specified in clause 1 of Article 208 of the Tax Code of the Russian Federation. Indirect income is considered to be income from sources in Russia, but received through foreign companies. The use of flat and progressive taxation scales is periodically the subject of controversy when considering draft laws in the State Duma due to the presence of a category of citizens with high incomes, thus implementing the principle of fair taxation, reducing the stratification of society. Opponents of the proposed methods of calculating taxes on a progressive scale criticized them, suggesting that the number of citizens with high incomes is small. The article reveals the benefits of payers when paying personal income tax on the territory of Russia from Russian income received through foreign companies using a progressive scale, and not from all direct income from Russian sources on a flat scale, as at present. When dividing the income of individuals into direct and indirect, there is a benefit for persons who carry out operations on the territory of foreign states with funds whose sources are the Russian Federation. The current situation allows us to formulate the following recommendations: To introduce progressive tax rates that would reflect the principle of fair taxation. Consider the income received by Russian organizations in foreign countries from operations in foreign countries on the basis of income received on the territory of Russia as indirect income. Create an automatic system for accounting for indirect income of Russian taxpayers, which would simultaneously calculate personal income tax.

Taxation with Mobile High-Income Agents: Experimental Evidence on Tax Compliance and Equity Perceptions

In a laboratory experiment on tax compliance, we model a situation in which high-income taxpayers can leave a tax system that finances a public good. We compare low-income taxpayers’ compliance decisions and equity perceptions across treatments in which they are informed or not informed about the mobility option of high-income taxpayers. This allows us to test if low-income taxpayers regard the mobility option as a rationale for implementing a regressive tax schedule. To investigate if a potential `justification effect’ of the mobility option depends on the causes of income heterogeneity, we also varied whether income was allocated based on relative performance in a prior ability task or at random. Interestingly, although the performance-based allocation itself was judged to be fairer, we observed higher compliance under the random allocation mechanism. However, compliance and equity perceptions did not significantly differ by the information treatment variation, regardless of the source of income inequality. The results indicate that the threat of losing high-income taxpayers’ contributions does not lead low-income taxpayers to view the regressive tax schedule more favorably. This suggests that taking the differential mobility options as given and altering tax schedules accordingly may not be perceived as an adequate policy response.

Determinan Kepatuhan Pajak

This study aims to obtain new empirical evidence regarding: (1) the factors that affect tax compliance, and (2) differences in tax compliance based on: the type of taxpayer, classification and sources of income. This study uses cross section data period 2001-2011 obtained through field research in one of the Regional Office of Directorate General of Taxation and is estimated using Ordinary Least Square method approach Newey West. The results showed that the amount of income, income taxes, penalties, the probability of an audit, the audit frequency and experience to fill the SPT either individually or jointly significant positive effect on tax compliance. Through testing different between groups, corporate taxpayers are relatively more adherent than an individual, a high-income taxpayer, more obedient than the relatively low-income taxpayers, taxpayers operating in the service sector, relatively less adherent than taxpayers operating in the trade sector, while taxpayers operating in the industrial sector, relatively more adherent than taxpayers operating in the trade sector

More Giving or More Givers? The Effects of Tax Incentives on Charitable Donations in the UK

This paper estimates the intensive and extensive-margin tax-price elasticities of giving using UK administrative tax return data, exploiting variation from a large tax reform. Using a variety of estimation methods and new instruments for the tax-price of giving, we find an intensive-margin elasticity of about -0.25 and an extensive-margin elasticity of -0.1, yielding a total elasticity of about -0.35. These estimates mask considerable heterogeneity: high-income individuals respond more on the intensive margin, while the extensive-margin response is stronger for low-income taxpayers. We then derive new conditions to evaluate the welfare consequences of changes in the subsidy to donations. This analysis shows that these elasticities can only be rationalized as being optimal if the UK government places a large enough value on providing warm-glow opportunities for UK donors.

Joint Winners, Separate Losers: Proposals to Ease the Sting for Married Taxpayers Filing Separately

A taxpayer who is “considered as married” according to the Internal Revenue Code’s definition must file either a joint income tax return or an individual return using the “married filing separately” filing status. Those married taxpayers who file a separate, rather than a joint, income tax return are denied valuable benefits and subjected to a host of other unfavorable limitations. Low-income taxpayers, in particular, are hurt by these limitations. Certain married taxpayers, including victims of domestic violence and abandoned spouses, may have no choice but to file using the married filing separately status. Low-income taxpayers are denied tremendous benefits, such as the earned income tax credit, as they begin to rebuild their lives.Perhaps intentionally because of these limitations, and in other cases perhaps unintentionally by misunderstanding or mistake, some taxpayers incorrectly choose single or head of household as their filing status when the correct status should have been married filing separately. In the context of the earned income tax credit, the cost to the government of this particular type of filing status error is estimated to be between $2.3 and $3.3 billion annually. As currently structured, not unsurprisingly, the limitations on the married filing separately filing status create an incentive for this type of taxpayer or return preparer noncompliance.Further complicating this filing status frustration, the Code imposes limitations on how and when married taxpayers may amend their return to file a joint return after one or both spouses files a separate return. The Internal Revenue Service applies a restrictive reading of these limitations; whether the Service is interpreting the Code correctly remains an open question in the courts.This Article explores these married taxpayer filing status limitations and the collateral consequences thereof. It briefly outlines how and why the joint filing option developed and touches upon the concepts of the marriage bonus and the marriage penalty. It concludes by proposing three alternative models to the current limitations imposed on married taxpayers who choose to (or have no choice but to) file separate returns. In each proposal, low-income taxpayers would have increased access to the credits meant to assist them. In addition to increasing fairness, each proposal would reduce or remove a structural incentive for taxpayer noncompliance.