Doing Too Much: The Standard Deduction and the Conflict Between Progressivity and Simplification
John R. Brooks
Georgetown University Law Center
June 23, 2011
Columbia Journal of Tax Law, Vol. 2, p. 203, 2011
Harvard Public Law Working Paper No. 10-39
Georgetown Public Law Research Paper No. 11-89
Georgetown Law and Economics Research Paper No. 11-11
In U.S. federal income tax, the standard deduction, along with the personal exemptions, provides taxpayers with a minimum amount of untaxed income, effectively creating a “zero bracket amount.” For historical and political reasons, however, the standard deduction also operates as a simplified substitute for the itemized deductions, such as the deductions for extraordinary medical expenses, charitable contributions, and home mortgage interest. This seemingly reasonable compromise in fact leads to substantial, and surprising, conceptual complexity. In particular, close analysis of each of the two roles shows that their effects, and related criticisms, are often contradictory, which in turn makes it difficult to have coherent debates regarding the proper roles of the standard deduction and the personal deductions.
This article argues that, while the standard deduction is worse than we think it is, it is also easier to fix than we think it is. We can replace the standard deduction with a true, independent zero bracket amount and a floor under the itemized deductions while staying revenue-and distribution-neutral. This would effectively divorce the two roles of the standard deduction – zero bracket amount and simplification of the itemized deductions – leading to more coherence in individual income taxation and giving more flexibility to policymakers. This article proposes further to disaggregate the single floor under the itemized deductions into multiple, independent floors under each itemized deduction. This also would lead to greater coherence and flexibility in tax system design. While creating multiple floors would marginally increase complexity for some taxpayers, the costs of such complexity are overstated relative to the benefits of more accuracy and coherence.
Number of Pages in PDF File: 45
Keywords: individual income tax, standard deduction, tax reform, progressivity, tax simplification, tax deductions
JEL Classification: H20, H23, H24, K00, K34
Date posted: July 7, 2010 ; Last revised: October 28, 2015