Tax Return Information Research Articles

Doing the Full Monty: Will Publicizing Tax Information Increase Compliance?

Publicity of information is a fundamental principle of American democracy. Not only is it instrumental in increasing compliance with the laws, a necessity of any government, but also it is an essential element of the right to know-which itself is an aspect of the first amendment right to free speech. Unfortunately, publicity often conflicts with another fundamental right-the right to privacy. In regards to taxes, citizens essentially have two rights to know: a right to know what the tax laws are, and a right to know that these laws are being administered fairly. Publicity in the tax context traditionally means making tax return information public records in an attempt to ensure the fair administration of the tax laws. This type of publicity, however, generates intense hostility because taxpayers perceive it as a huge invasion of their privacy.After examining the pros and cons of traditional publicity of tax information, this Essay suggests that tax publicity be reconceived more broadly. Redefined in the dictionary sense of simply the transmission of information, tax publicity can include a wide array of communications, varying as to content and audience, which can better achieve publicity’s underlying goals with minimal invasions of privacy. A large portion of publicity in this broad sense can be-and should be-educational.The Essay outlines four publicity proposals to stimulate discussion. Three use the expanded definition of publicity and focus on individual taxpayers: an annual tax statement, a short booklet to accompany the 1040, called Know Your Taxes, and an annual W-4. These essentially educational programs should deliver tax information to taxpayers more effectively than currently occurs. The fourth, more controversial, proposal suggests partial publicity-in the traditional sense. It attempts, however, to minimize the customary objections to publicizing tax return information by reducing invasions of privacy.All the proposals will cost money, but probably less than the costs of enforcing compliance only through increased audits and litigation. They may also have psychic and political costs. Although recent studies show that more informed taxpayers are often more compliant, some of the information may trigger negative attitudes which would decrease compliance and/or create pressure for lower taxes.Regardless of whether taxpayer reactions to the increased information are positive or negative, the greater publicity proposed in the Essay could have salutary effects, especially if it occurred in the context of a rational debate by elected officials about tax policy (instead of the current inflammatory rhetorical sound bites). On the one hand, if taxpayers respond positively to publicity, compliance will increase. If they act negatively, and their hostility to taxes increase, at least the publicity will arm them with more precise information that will allow them to focus their objections to the income tax and thereby lobby more effectively for real tax reform.

Public Disclosure of Corporate Tax Return Information: Accounting, Economics, and Legal Perspectives

This paper offers an overview of the issues raised by disclosure of corporate tax return information by providing cur- rent and historical perspectives from the fields of accounting, eco- nomics, and law. It reaches a number of conclusions. First, we are concerned that disclosure of the entire corporate tax return could cause companies to dilute the information content of these returns, hampering tax enforcement, and might, even in diluted form, re- veal proprietary information that could provide a competitive ad- vantage to those companies that are not required to make such a disclosure. For this reason we do not support full disclosure. The case for considering limited public disclosure of corporate tax return information—revealing a small number of bottom-line items or an expanded reconciliation between tax and book concepts of income—rests on the fact that it would contribute to the trans- parency of the tax system by clarifying the tax payments of corpora- tions in and of themselves, relative to other corporations, and rela- tive to the income they report on their financial statements. The greater transparency could have several beneficial effects. First, it could put pressure on legislators to improve the tax system. Second, it could induce corporations to resist aggressive tax reduction strat- egies if they fear that disclosure of their low tax payments would trigger a negative consumer response; whether it would provoke negative investor response is less clear, as more transparency could conceivably induce a race to the bottom of low tax liability. Finally, it could contribute to better functioning of financial markets if it sheds new light on the information presented in financial statements. We find the case for limited disclosure to be compelling enough that we look forward to the next step of considering the best form of disclosure and the details of its implementation.

Evidence on the Volunteer Labor Supply of Married Women

1. Introduction In this paper I investigate the volunteer labor supply of married women. There are dozens of studies that examine the labor supply of married women and a smaller number that investigate the supply of volunteer labor in general. As far as I know there are none that have focused on the supply of volunteer labor by married women. I analyze time diary data for the 1970s to consider one main question and three subsidiary questions. (i) What was the direct effect of economic variables (after-tax wage rate and other income) on married women's volunteering (both participation and hours)? (ii) Does the number of children in the family influence the volunteering of married women? To the extent that rising wages may induce smaller family size, is this an indirect channel that reduces volunteering (if one of the motivations for volunteering is to increase the quantity or quality of activities for one's own children)? The 1970s is an especially interesting time period to examine in the United States as that was the decade that saw the first large increases in married women's labor force participation rates. (iii) Are time and donations substitutes or complements for married women? (iv) Do the data support the Brown and Lankford (1992) modeling conjecture concerning a sequence of time allocation decisions as opposed to the Gronau model of household time allocation where such decisions are made simultaneously (Gronau 1986)? I find that (i) the volunteer labor supply for married women is positively sloped and inelastic with an estimated wage elasticity of +0.64. Rises in the net wage have a small negative effect on married women's participation in volunteer activities; a 25% rise in the net wage is associated with a 1% drop in the probability of volunteering. There is a small negative other income (from assets and husband's earnings) elasticity of volunteer labor supply, -0.09, so other sources of income mattered for married women's volunteering in the 1970s. The effect of other income on married women's volunteer participation is positive. (ii) Having more children increases the probability of volunteering but reduces the number of hours volunteered. (iii) Donations of time and money appear to be substitutes overall; the elasticity of married women's volunteer hours with respect to the tax price of giving is greater than two. The participation effect is again negative. (This result is tentative because the data are not based on tax return information and I lack good information on cash donations.) (iv) There is mixed support for the Brown and Lankford conjecture. The finding of a positive wage elasticity of volunteer labor supply is at odds with the opportunity cost of time interpretation of the wage, especially as the finding for other income is also negative, implying that volunteer hours are an inferior good. Substitution and income effects would, therefore, both be in a negative direction as the net wage rises. The results with the sequential specification are sensible and easily interpreted, but the key parameter estimate does not quite meet conventional standards of statistical significance. Increased hours of work decrease married women's participation and hours. An added test of the sequential model is less favorable. The wage findings suggest that rising wages for women caused a reduced incidence of volunteering among married women but, if anything, increased the hours of volunteering. One possible vehicle for this would be the entry of women into professional careers where volunteering is a normal part of the career. Another possible explanation is that married women with a loose attachment to volunteering stopped volunteering and those married women with greater attachment to volunteering increased their hours commitments to offset the participation effect. The link between children and volunteering is important as an indicator of how much selfinterest is involved in volunteering. For example, school volunteering may be a way of providing enhanced investment in one's own children where the benefit to others is a by-product. …

Implications of Phase-Outs on Individual Marginal Tax Rates

The goal of this paper is to show the behavior of effective marginal tax rates relative to statutory marginal tax rates within the rate structure of the present federal income tax regime. Understanding the behavior of effective marginal rates is important as these rates are a significant component of tax planning and decision making. Statutory marginal tax rates are explicitly stated in published rate schedules. Various deductions, exemptions and credits involved in determining the tax liability are phased out as gross income increases. These restrictions result in effective marginal tax rates that can exceed respective statutory rates. Substantial divergence between effective and statutory rates can occur when multiple phase-out provisions overlap and interact. This study develops an algebraic model using tax return information that converts statutory to effective marginal rates. Policy implications concerning simplifying the effective rate structure are also discussed.

The Impact of Multiple Component Reporting on Tax Compliance and Audit Strategies

Prior studies of the strategic interaction between taxpayers and the tax authority have focused on reported net taxable income and on audit policies designed to discover potential misstatement of that single item. This paper extends the literature by modeling taxpayer compliance behavior and tax authority audit strategies within the context of a multidimensional report of taxable income. Specifically, the study analyzes the impact of component reporting requirements on taxpayer incentives to misstate their tax liability. It also allows the tax authority to tailor its audit policy to consider all tax return information. In particular, the model permits the tax authority to audit return components sequentially: the investigation of a second component is conditional on the results of the first component's audit. The study finds that partitioning taxable income into a multi-component report reduces overall tax evasion and increases tax authority net revenue collections relative to a singlereport model of net taxable income. However, the impact on predicted evasion is not uniform across taxpayers. While some taxpayers reduce evasion, others with multiple opportunities to evade are more likely to do so when faced with multi-component reporting requirements.

Global organizations and taxes: An analysis of the dividend, interest, royalty, and management fee payments between U.S. multinationals' foreign affiliates

We examine the effects of taxes on cross-border dividend, interest, royalty, and management fee payments between foreign affiliates of U.S. multinationals. Using 1990 tax return information on transfers totaling $22.8 billion and spanning 71 countries, we find dividend, royalty, and sometimes interest payments between foreign affiliates are negatively correlated with the net tax levied on cross-border transfers. We find no evidence management fees are structured to mitigate non-U.S. taxes. Thus, taxes affect the location of the supplier and the terms of the contracts for the provision of equity and intangible capital within the worldwide organization.

The information society

Canada has instituted an automated system that allows individual income tax return information to be delivered to Revenue Canada electronically.