PUBLISHED PAPERS
Mortenson, Jacob A., Heidi R. Schramm, and Andrew Whitten (2019), The Effects of Required Minimum Distribution Rules on Withdrawals from Traditional IRAs, National Tax Journal, 72:3, pp. 507-542.
*winner of the 2019 Richard A. Musgrave Prize for best article in the National Tax Journal.
*winner of the 2019 Richard A. Musgrave Prize for best article in the National Tax Journal.
WORKING PAPERS
(2019) Bunching to Maximize Tax Credits: Evidence from Kinks in the U.S. Tax Schedule
coauthor: Jake Mortenson
[online appendix here]
code: .ado file to estimate bunching
media: wall street journal
forthcoming in American Economic Journal: Economic Policy
We explore bunching at U.S. income tax kinks using a panel of 258 million tax returns from 1996 to 2014. We find bunching at seven kinks, with nearly all bunching occurring at kinks maximizing tax credits. In our sample period, the total number of bunchers increased at a 10.9 percent annualized growth rate, from 134,300 in 1996 to 866,600 in 2014. Approximately two-thirds of these bunchers locate at the unique point that maximizes refunds. Some taxpayers repeatedly bunch at this point, even in consecutive years when different tax kinks are refund maximizing.
(2019) Simulating the 199A Deduction for Pass-through Owners
coauthors: Lucas Goodman, Katie Lim, and Bruce Sacerdote
We analyze the new Section 199A deduction for pass-through income using a representative sample of administrative data from tax year 2016. We identify the taxpayers who would have benefited from the pass-through deduction had it applied in 2016. The analysis uses taxpayers' reported income, abstracting from behavioral responses, and applies key aspects of 2018 tax code. We do not attempt to model any potential economic growth spurred by 199A, nor do we model the economic incidence of the deduction. The estimated tax savings from the deduction, measured in 2018 dollars, is $34.5 billion. The majority of the beneficiaries of the deduction are in the bottom 80 percent of the income distribution. However, 60 percent of pass-through income, and 72 percent of the statutory benefit of the passthrough deduction, accrues to taxpayers in the top five percent of adjusted gross income (above roughly $208,000). Without the 199A guardrails, we estimate that this group would receive 83 percent of the statutory benefit.
(2019) Profitability, Taxes, and the IPO: Evidence from U.S. Corporate Tax Returns
coauthor: Christine Dobridge
How do corporate profitability and tax-paying change following an initial public offering (IPO)? Using an unbalanced panel of 24,259 U.S. corporate tax returns spanning 1994 to 2017, we examine this question by comparing the profitability and taxes paid of firms that completed an IPO with firms that withdrew a filing. We instrument for IPO completion with short-run changes in the NASDAQ stock index and the equity dividend premium. We find that profitability of firms that complete and withdraw an IPO trend similarly around the IPO filing year but that IPO completion leads to higher profitability on average. We also find that following IPO completion, firms pay higher U.S. taxes as a share of sales and pre-interest income, suggesting that firms may become less tax aggressive after completing an IPO.
(2018) The Absence of Income Effects at the Onset of Child Tax Benefits
coauthors: Jake Mortenson, Heidi Schramm, and Lin Xu
We study the effects of quasi-random variation in unearned income on labor force participation, earnings, business income, capital gains realizations, retirement savings, and unemployment compensation. To identify these income effects, we exploit an age discontinuity in the federal tax system: parents whose children are born in December of year t-1 can claim child-related tax benefits for that year, whereas otherwise-similar parents whose children are born in January of year t cannot. We use a panel of administrative tax data comprised of the universe of married households with a child born in December or January in years 2001 through 2013. Over this period, the average child tax benefit was about $1,800. Using a regression discontinuity research design, we find approximately zero treatment effects on the intensive and extensive margin for all outcome variables studied. Our results are consistent with precise zero income effects and suggest that households do not learn about (and respond to) child tax benefits in the first year they are claimed.
(2016) Estimating the Elasticity of Broad Income for High-Income Taxpayers
coauthors: Laura Kawano and Caroline Weber
This paper precisely estimates the elasticity of broad income (EBI) with respect to the marginal net-of-tax rate for high-income taxpayers. We study the introduction of a new top income tax bracket in 2013 using a large panel of high-income taxpayers drawn from administrative tax records. Our estimation strategy – inverse probability weighting – takes into account the tremendous income volatility experienced by high-income taxpayers. We obtain an intent-to-treat (ITT) EBI of 0.013. After rescaling to account for taxpayers crossing the top income tax bracket threshold, we obtain a treatment-effect-on-the-treated elasticity that is bounded below by the ITT estimate and above by 0.034.
coauthor: Jake Mortenson
[online appendix here]
code: .ado file to estimate bunching
media: wall street journal
forthcoming in American Economic Journal: Economic Policy
We explore bunching at U.S. income tax kinks using a panel of 258 million tax returns from 1996 to 2014. We find bunching at seven kinks, with nearly all bunching occurring at kinks maximizing tax credits. In our sample period, the total number of bunchers increased at a 10.9 percent annualized growth rate, from 134,300 in 1996 to 866,600 in 2014. Approximately two-thirds of these bunchers locate at the unique point that maximizes refunds. Some taxpayers repeatedly bunch at this point, even in consecutive years when different tax kinks are refund maximizing.
(2019) Simulating the 199A Deduction for Pass-through Owners
coauthors: Lucas Goodman, Katie Lim, and Bruce Sacerdote
We analyze the new Section 199A deduction for pass-through income using a representative sample of administrative data from tax year 2016. We identify the taxpayers who would have benefited from the pass-through deduction had it applied in 2016. The analysis uses taxpayers' reported income, abstracting from behavioral responses, and applies key aspects of 2018 tax code. We do not attempt to model any potential economic growth spurred by 199A, nor do we model the economic incidence of the deduction. The estimated tax savings from the deduction, measured in 2018 dollars, is $34.5 billion. The majority of the beneficiaries of the deduction are in the bottom 80 percent of the income distribution. However, 60 percent of pass-through income, and 72 percent of the statutory benefit of the passthrough deduction, accrues to taxpayers in the top five percent of adjusted gross income (above roughly $208,000). Without the 199A guardrails, we estimate that this group would receive 83 percent of the statutory benefit.
(2019) Profitability, Taxes, and the IPO: Evidence from U.S. Corporate Tax Returns
coauthor: Christine Dobridge
How do corporate profitability and tax-paying change following an initial public offering (IPO)? Using an unbalanced panel of 24,259 U.S. corporate tax returns spanning 1994 to 2017, we examine this question by comparing the profitability and taxes paid of firms that completed an IPO with firms that withdrew a filing. We instrument for IPO completion with short-run changes in the NASDAQ stock index and the equity dividend premium. We find that profitability of firms that complete and withdraw an IPO trend similarly around the IPO filing year but that IPO completion leads to higher profitability on average. We also find that following IPO completion, firms pay higher U.S. taxes as a share of sales and pre-interest income, suggesting that firms may become less tax aggressive after completing an IPO.
(2018) The Absence of Income Effects at the Onset of Child Tax Benefits
coauthors: Jake Mortenson, Heidi Schramm, and Lin Xu
We study the effects of quasi-random variation in unearned income on labor force participation, earnings, business income, capital gains realizations, retirement savings, and unemployment compensation. To identify these income effects, we exploit an age discontinuity in the federal tax system: parents whose children are born in December of year t-1 can claim child-related tax benefits for that year, whereas otherwise-similar parents whose children are born in January of year t cannot. We use a panel of administrative tax data comprised of the universe of married households with a child born in December or January in years 2001 through 2013. Over this period, the average child tax benefit was about $1,800. Using a regression discontinuity research design, we find approximately zero treatment effects on the intensive and extensive margin for all outcome variables studied. Our results are consistent with precise zero income effects and suggest that households do not learn about (and respond to) child tax benefits in the first year they are claimed.
(2016) Estimating the Elasticity of Broad Income for High-Income Taxpayers
coauthors: Laura Kawano and Caroline Weber
This paper precisely estimates the elasticity of broad income (EBI) with respect to the marginal net-of-tax rate for high-income taxpayers. We study the introduction of a new top income tax bracket in 2013 using a large panel of high-income taxpayers drawn from administrative tax records. Our estimation strategy – inverse probability weighting – takes into account the tremendous income volatility experienced by high-income taxpayers. We obtain an intent-to-treat (ITT) EBI of 0.013. After rescaling to account for taxpayers crossing the top income tax bracket threshold, we obtain a treatment-effect-on-the-treated elasticity that is bounded below by the ITT estimate and above by 0.034.
DORMANT PAPERS
(2016) Optimal Taxation of Internalities: The Role of Market Incentives
This paper analyzes the optimal taxation of goods when consumers fail to maximize their own utility, imposing internalities on themselves. This can happen due to imperfect information, cognitive bias, or lack of willpower, among other causes. I relax two ubiquitous assumptions found in other work on this topic by studying imperfect competition and the incentive firms have to de-bias consumers. Contrary to standard results, I find that (i) internality correction, even if costless, is not always desirable; (ii) optimal tax rates are generally not equal to marginal internalities; and (iii) firm de-biasing incentives attenuate the optimal internality tax or subsidy.
This paper analyzes the optimal taxation of goods when consumers fail to maximize their own utility, imposing internalities on themselves. This can happen due to imperfect information, cognitive bias, or lack of willpower, among other causes. I relax two ubiquitous assumptions found in other work on this topic by studying imperfect competition and the incentive firms have to de-bias consumers. Contrary to standard results, I find that (i) internality correction, even if costless, is not always desirable; (ii) optimal tax rates are generally not equal to marginal internalities; and (iii) firm de-biasing incentives attenuate the optimal internality tax or subsidy.