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Analyzing Firm Behavior Using United States Tax-Returns Data

Paper Session

Sunday, Jan. 5, 2020 1:00 PM - 3:00 PM (PST)

Marriott Marquis, Torrey Pines 2
Hosted By: American Economic Association
  • Chair: Eric Zwick, University of Chicago and NBER

Top Wealth in the United States: New Estimates and Implications

Eric Zwick
,
University of Chicago and NBER
Matthew Smith
,
U.S. Treasury Department
Owen Zidar
,
Princeton University and NBER

Abstract

This paper uses administrative tax data to estimate top wealth in the United States over time and across regions. We build on the capitalization approach in Saez and Zucman (2016) while accounting for heterogeneity within asset classes when mapping income flows to wealth. Our approach incorporates three quantitatively relevant sources of heterogeneity: (1) higher fixed income returns at the top, (2) realized capital gains that do not represent corporate stock sales, and (3) geographic variation in property tax rates. Overall, wealth concentration is very high: the top 1% holds as much wealth as the bottom 90%. However, the “P90-99” class holds more wealth than either group after accounting for heterogeneity. Relative to a top 0.1% wealth share of 20% under equal returns, we estimate a top 0.1% wealth share of 14% and find that the rise since 1980 in top wealth shares falls by half. Top portfolios depend less on fixed income and public equity and more closely match those reported in the SCF and estate tax returns. Coastal states have experienced two-thirds of all wealth growth and nearly all of the housing wealth growth since 1980. We explore implications for the mechanical revenue estimates from a wealth tax and top capital income shares in distributional national accounts, which depend on well-measured estimates of top wealth. Though the capitalization approach has advantages over other methods of estimating top wealth, we emphasize that considerable uncertainty remains inherent to the approach by showing the sensitivity of estimates to different assumptions.

Is Gig Work Replacing Traditional Employment? Evidence from Two Decades of Tax Returns

Brett Collins
,
Internal Revenue Service
Andy Garin
,
University of Illinois-Urbana-Champaign and NBER
Emilie Jackson
,
Stanford University
Dmitri K. Koustas
,
University of Chicago
Mark Payne
,
Internal Revenue Service

Abstract

We examine the universe of tax returns to reconcile seemingly contradictory facts about the rise of alternative work arrangements in the United States. Focusing on workers in the “1099 workforce,” we document the share of the workforce with income from alternative, non-employee work arrangements has grown by 1.9 percentage points of the workforce from 2000 to 2016. More than half of this increase occurred over 2013 to 2016 and can be attributed almost entirely to dramatic growth among gigs mediated through online labor platforms. We find that the rise in online platform work for labor is driven by earnings that are secondary and supplemental sources of income. Many of these jobs do not show up in self-employment tax records: approximately 44 percent of the overall growth in the 1099 economy comes from people who do not file self-employment taxes. Examining the relationship between 1099s and self-employment tax records more generally, we find that the previously documented increases in self-employment tax filings since 2007 are largely driven by workers without 1099s. We discuss implications of these findings for tax administration and measurement of alternative work using tax data.

Sharing the Burden: Responses of Business Owners to Changes in the Top Personal Income Tax Rate

Max Risch
,
University of Michigan

Abstract

This paper analyzes the role of the firm in mediating responses to changes in top marginal tax rates using a new linked owner-firm-employee dataset created from the universe of deidentified administrative tax records from the IRS. The majority of business income in the United States is held by pass-through businesses whose income is taxed at the personal income tax rates of firm owners, as opposed to being taxed at the corporate level. I study whether changes in the top marginal tax rate faced by business owners affect the compensation of the employees in their firms. I use panel difference-in-differences methods to estimate the sign and magnitude of these within-firm spillovers by comparing the earnings of employees in similar firms but whose owners were differentially exposed to a recent increase in the top marginal income tax rate. I find that employees in firms whose owners were more exposed to a tax increase reported lower relative earnings following the tax reform; approximately 18 cents per dollar of new tax liability was passed through to employee earnings. The observed response was a result of lower earnings paid to employees attached to their firms, and not due to compositional changes in employment. The earnings responses were larger in states with slack labor markets and larger among employees in the lower portion of their firms’ earnings distribution. These results provide some of the first direct evidence of pass-through from changes in the top marginal personal income tax rate to lower-bracket workers not directly subject to the top rate. I show that the presence of within-firm spillovers implies that the elasticity of taxable income of those facing a given rate change is not a sufficient statistic for welfare analysis.

Small Business Tax Compliance under Third-Party Reporting

Bibek Adhikari
,
Illinois State University
James Alm
,
Tulane University
Timothy Harris
,
Illinois State University

Abstract

Does third-party income reporting improve tax compliance? We use confidential administrative data from tax returns and information reports to estimate the impact of third-party income reporting on small business tax compliance. Starting in 2011, payment settlement entities (e.g., American Express) were required by law to report payment card transactions to both the firm and the Internal Revenue Service using Form 1099-K. This requirement made businesses' receipts from payment cards---but not their cash receipts---third-party reported. Consequently, businesses located in areas with higher payment card use experienced greater levels of third-party income reporting compared to businesses located in lower credit card use areas. We construct an index of payment card use at the commuting zone level, and we use this variation to identify the effect of Form 1099-K on reported receipts by small businesses. We find that the legislation significantly increased reported receipts, although with heterogeneous effects across industry, business size, and business type.
JEL Classifications
  • H3 - Fiscal Policies and Behavior of Economic Agents
  • H2 - Taxation, Subsidies, and Revenue