Working Papers
(with William C. Boning, Nathaniel Hendren, and Ben Sprung-Keyser)
Coverage: Washington Post, Bloomberg, NBER
We estimate the returns to IRS audits of taxpayers across the income distribution. We find an additional $1 spent auditing taxpayers above the 90th income percentile yields more than $12 in revenue, while audits of below-median income taxpayers yield $5. We construct our estimates by drawing upon comprehensive internal accounting information and audit-level enforcement logs. We begin by estimating the average initial return to all audits of US taxpayers filing in 2010-2014. On average, $1 in audit spending initially raises $2.17 in revenue. Audits of high-income taxpayers are more costly, but the additional revenue raised more than offsets the costs. Audits of the 99-99.9th percentile have a 3.2:1 initial return; audits of the top 0.1% return 6.3:1. We then exploit the 40% audit reduction between tax years 2010 and 2014 to examine the returns to marginal audits. We find they exceed the returns to average audits. Revenues remain relatively unchanged but marginal costs fall below average costs due to economies of scale. Next, we use randomly selected audits to examine the impact of an initial audit on future revenue. This specific deterrence effect produces at least three times more revenue than the initial audit. Deterrence effects are relatively consistent across the income distribution. This results in the 12:1 return above the 90th percentile. We conclude by estimating the welfare consequences of audits using the MVPF framework and comparing audits to other revenue raising policies. We find that audits raise revenue at lower welfare cost.
(Revise and resubmit at Journal of Public Economics, with Victoria Bryant)
Tax-benefited retirement accounts have features designed to encourage retirement savings, including a penalty for withdrawing before age 59.5. Account holders also face a penalty for failing to take required minimum withdrawals after age 72. Using a bunching analysis, we estimate that these penalties cause more than 17% of traditional IRA holders to change their withdrawal timing each year, shifting close to $60 billion of distributions annually. We estimate a dynamic life-cycle model and run counterfactual policy analysis to analyze the effect of changing these penalties. For both penalties, we find alternative combinations of age threshold and penalty rate that lead to increased average welfare and lifetime tax remittances: increasing the age threshold while simultaneously lowering the penalty rate for penalty-free withdrawals, and increasing the age threshold for required withdrawals while leaving the penalty rate unchanged.
Does Giving Tax Debtors a Break Improve Compliance and Income? Evidence from Quasi-Random Assignment of IRS Revenue Officers [draft available upon request]
(Revise and resubmit at Economic Inquiry, with William C. Boning, Joel Slemrod, and Alex Turk)
When economic hardship prevents a tax debtor from paying basic living expenses, the Internal Revenue Service puts debt collection efforts on hold and designates the debt currently not collectible (CNC). This paper uses the quasi-random assignment of IRS Revenue Officers to tax debtors' cases as an instrumental variable to identify the causal effects of suspending debt collection on tax compliance and future income. In contrast to uninstrumented estimates, we find no evidence that putting off attempts to collect debt reduces compliance with future tax obligations or future reported income. Among marginal hardship cases, pausing collection instead increases future income, specifically wages earned by the taxpayer's spouse.
Work in Progress
The Effects of Increasing the Full Retirement Age on Retirement Savings: Evidence from U.S. Tax Data
(with Victoria Bryant, Jonathan M. Leganza, and Dhiren Patki)
Untold Secrets of Tax Preparers, Complexity, and Compliance
(with Giacomo Brusco, Yeliz Kaçamak, and Mark Payne)