The Compliance Cost of Itemizing Deductions: Evidence from Individual Tax Returns

22 Pages Posted: 6 Jul 2004

See all articles by Mark M. Pitt

Mark M. Pitt

Brown University

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: March 1988

Abstract

The resource cost of operating the income tax system is large, totaling as much as seven to eight percent of revenue raised. One source of this cost is the system of itemized deductions, which can require extensive record keeping and calculation. This paper estimates the resource cost of itemizing deductions. In contrast to previous studies of compliance cost which rely an survey evidence, we infer this evidence from data reported on tax returns which suggest that there exists taxpayers who would save money by itemizing but who choose not to. We find that in 1982 the private cost of itemizing totaled $1.44 billon, or $43 per itemizing taxpayer. The compliance cost dissuaded from itemizing aver 650,000 taxpayers who would have thereby saved taxes, causing an extra tax liability of nearly $200 million. Increasing the standard deduction by $1,000 would save $100 million in resources that would otherwise have been devoted to itemizing.

Suggested Citation

Pitt, Mark M. and Slemrod, Joel B., The Compliance Cost of Itemizing Deductions: Evidence from Individual Tax Returns (March 1988). NBER Working Paper No. w2526. Available at SSRN: https://ssrn.com/abstract=425559

Mark M. Pitt

Brown University ( email )

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Joel B. Slemrod (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

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