Peer Reviewed Proceedings

Tax Rate Preferences, Understanding the Effects of Perceived and Actual Current Tax Assessments

2007,

Peggy A. Hite

Abstract

Results from prior research on rate preferences are problematic in that tax rate preferences provided by taxpayers are typically based on the average rates. The present study reports several measures of progressivity to better understand what aspect of progressivity is driving the responses (e.g., the lowest marginal rate, the highest rate, the spread of rates, the slope..). In addition, this study examines the effect of knowing what actual status quo tax assessments are. The results indicate that while status quo tax assessments lead to lower tax preferences compared to subjects without status quo information, those tax assessments are still significantly higher than the given status quo information. The implication is that average Federal income tax liabilities under current law may be much lower than most taxpayers realize, as media coverage highlights marginal tax rates, not average tax rates. If true, then knowledge of actual assessments may improve taxpayer perceptions about the fairness of current tax rates. Our data suggest this is true.

 

Citation

Hite, Peggy A. (2007), "Tax Rate Preferences, Understanding the Effects of Perceived and Actual Current Tax Assessments,” IRS Research Bulletin, Internal Revenue Service Statistics of Income Division: Publication 1500, pp. 23-50.