Progressive Taxation, Fairness, and Compliance*

Abstract

This paper examines the preferences for income tax progressivity, other tax fairness issues, and tax compliance of a national sample of nearly six hundred heads of U.S. households. The results reveal that mean public preferences for fair tax burdens are close to actual effective tax rates; however, the similarity between average preferred and actual effective tax rates masks an underlying schism between three groups: (I) those who believe tax rates should be higher for upper income persons (steep progressives), (2) those who prefer mildly progressive tax rates (mild progressives), and (3) those who believe tax rates should be flat (“flatraters). The analysis includes demographic and fairness profiles associated with tax rate preferences. Attitudes about the overall fairness of the income tax, exchange equity with the federal government, government spending, tax complexity, and tax compliance behavior are examined. In general, respondents' stated preferences for vertical equity approximate the current distribution of the income tax burden, yet there is a relatively high consensus that the income tax is unfair, especially with regard to the ability of wealthy taxpayers to exploit loopholes to avoid paying their fair share, and that respondents regard their own tax burdens as unfair. These results suggest that providing information to the public about the relative amount of income taxes paid by upper income individuals and the effects of recent limitations on “loopholes” could improve public attitudes about the fairness of the income tax and tax compliance.

The impact of outcome orientation and justice concerns on tax compliance: The role of taxpayers' identity.

“…Roberts and Hite (1994) even found an unpredicted positive relation between overall fairness and admitted past noncompliance.…”

Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation

“…If an individual's tax burden is of about the same magnitude as that of comparable others, tax compliance increases (see also De Juan, Lasheras & Mayo 1994; Spicer & Becker 1980). Kinsey and Grasmick (1993) and Roberts and Hite (1994) report that vertical unfairness of the tax schedule (the progressivity of the income tax) increases tax evasion. This is in line with the results by Scott and Grasmick (1981), who report evidence that deterrence was more effective for taxpayers who perceived the tax system to be unfair.…”

Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy

“…High tax compliance and positive perceptions of …scal exchange arise when taxpayers regard the tax system as fair and responsive to citizen preferences, …nancing government programs delivering personal bene…ts and public goods citizens approve of. (See, for example, Alm, Jackson, and McKee 1993, Cummings et al 2005, Feld, and Frey 2007, Pommerehne, Hart, and Frey 1994, Pommerehne, and Weck-Hannemann 1996, Roberts, and Hite 1994, and Schloz, and Lubell 1998.) Yet the correspondence is far from perfect.…”