THE IMPACT OF PROFESSIONAL TAX ADVICE ON TAXPAYER RESPONSES TO CHANGES IN MARGINAL TAX RATES (TAX REFORM ACT OF 1986).

摘要

The tax behavior literature has extensively examined the question of how taxpayers respond to changes in marginal tax rates. However, the extant tax behavior research makes a general assumption that taxpayers that receive professional tax advice behave similarly to taxpayers without tax advice. This study uses analogs drawn from the academic literature in the areas of taxpayer behavior, tax compliance and taxpayer demand for tax services to motivate the research question: Does the presence of professional tax advice, as proxied by the presence of a tax advisor, have an impact on taxpayer responses to changes in marginal tax rates? This question is mined by testing hypotheses designed to assess the significance of professional tax advice on changes in taxable income, comprehensive income, sole proprietorship income/loss, capital gains and losses, home mortgage interest, and charitable contributions during periods when marginal tax rates change. Elasticity analysis is used to measure the taxpayers' behavioral responses to changes in tax rates.; The Tax Reform Act of 1986 is the tax law change for which the above behavioral responses are measured. Archival tax return data for tax years 1985 to 1988, obtained from the E&Y/University of Michigan tax database, are used to gather evidence about these questions. OLS first difference regressions, OLS single year linear regression, t-tests, and Wilcoxon non-parametric tests are used to assess the statistical significance of the findings.; This study provides evidence that marginal tax rate elasticities of adjusted taxable income, comprehensive income, mortgage interest, charitable contributions and capital gains/losses for taxpayers that engage tax preparers are significantly different from similar taxpayers that do not engage tax preparers. These findings coupled with the fact that approximately 50% of all income tax returns are prepared by tax practitioners suggests that tax policy makers should consider the impact tax advisors have on taxpayer behaviors when developing revenue estimates from new tax laws. This study also provides evidence of the impact tax advisors may have on the tax system as a whole.