Warren B’s call for higher taxes on the rich should delight their accountants. We need job growth and a growth in the number of accountants would count! His OP-ED reminded me that I have written an unknown paper on this topic.
Bill Gentry and I had a smart thought. For each U.S zip code, you can collect data on how much income is reported to the IRS. For the same zip codes, using year 2000 Census data, you can collect data on how much income is reported to the Census interviewers. For each zip code, we took a ratio of these numbers. My intuition was that people would use legal and illegal means to shade down their taxable income reported to the IRS but would tell the truth to the Census. In this case, this “batting average” of (IRS Reported Income/Census Reported Income) is an interesting zip code level variable. We then study in which areas of the nation is this ratio high? These are “patriotic Buffet” places that are paying their taxes. If you look at our Table 4, we find that in states where the tax rate is high that this ratio is lower.
Switching subjects, Michael O’Hare and I are having lunch today. The RBC is a community of scholars.