Personal Income Tax Gap for Business Income Earners In New York State: From the Real Estate Tax Perspective

Niu, Yongzhi and Cohen, Roger (2010): Personal Income Tax Gap for Business Income Earners In New York State: From the Real Estate Tax Perspective.

Abstract

Based on the recognition that the evasion of real estate tax is much more difficult than the evasion of personal income tax and the assumption that, in general, taxpayers with similar income would consume a similar amount of housing and pay a similar amount of real estate tax, we build a model to estimate the personal income tax gap for business income earners in New York State. More specifically, we compare reported Federal adjusted gross income (AGI) between two groups of taxpayers: wage earners and business income earners. With the assumption that the wage income earners fully report their income, we find that there is a huge reporting gap of AGI for the business income earners in New York State as a whole. The income gap is $67.8 billion in 2007, which accounts for 26.2 percent of the total AGI the business income earners would have reported if they had been totally compliant with tax laws. If we apply the median of the New York State personal income tax rate, 5.25 percent, to the income gap, the personal income tax gap for the business income earners in the State in 2007 reaches $3.6 billion.

• Item Type: MPRA Paper
• Language: English
• Keywords: tax gap; PIT; personal Income Tax; business income; wage income; real estate tax; underreporting
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance

References

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George, J. Russell (2006), “A Closer Look at the Size and Sources of the Tax Gap,” Testimony before the U.S. Senate Committee on Finance, Subcommittee on Taxation and IRS Oversight, July 26, 2006