Bunching to Maximize Tax Credits: Evidence from Kinks in the U.S. Tax Schedule

42 Pages Posted: 23 Jan 2016 Last revised: 2 Feb 2018

Jacob Mortenson

Joint Committee on Taxation, US Congress

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA)

Date Written: January 2018

Abstract

We explore bunching at U.S. income tax kinks using a panel of 257 million tax returns from 1996 to 2014. The vast majority of bunching occurs at kinks maximizing tax credits, and 71% of bunchers locate at the unique point that maximizes refunds. This behavior appears to be inconsistent with individuals responding proportionally to changes in marginal rates, an assumption underlying recently developed methods for identifying tax elasticities through bunching. In our sample period, the number of bunchers at refund-maximizing kinks increased by 538%: from 90,000 taxpayers in 1996 to 574,000 in 2014.

Keywords: bunching; tax credits; tax evasion; public finance; self-employment

JEL Classification: H23, H24, H26, H31, J22

Suggested Citation

Mortenson, Jacob and Whitten, Andrew, Bunching to Maximize Tax Credits: Evidence from Kinks in the U.S. Tax Schedule (January 2018). Available at SSRN: https://ssrn.com/abstract=2719859 or http://dx.doi.org/10.2139/ssrn.2719859

Jacob Mortenson

Joint Committee on Taxation, US Congress ( email )

502 Ford House Office Building
Washington, DC 20515
United States

HOME PAGE: http://www.jacobmortenson.com

Andrew Whitten (Contact Author)

U.S. Department of the Treasury - Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

HOME PAGE: http://rawhitten.com

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