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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Research Service (CRS)

 

Itemized Tax Deductions for Individuals: Data Analysis

Sean Lowry,  Analyst in Public Finance

February 12, 2014

http://www.fas.org/sgp/crs/misc/R43012.pdf

[Full-text, 15 pages]

 

Summary

Reforming or limiting itemized tax deductions for individuals has gained the interest of

policymakers as one way to increase federal tax revenue, increase the share of taxes paid by

higher-income tax filers, simplify the tax code, or reduce incentives that might lead to inefficient

economic behavior. However, limits on deductions could cause adverse economic effects or

changes in the distributional burden of the federal income tax code. This report is intended to

identify who claims itemized deductions, for how much, and for which provisions?

 

This report analyzes data to inform the policy debate about reforming itemized tax deductions for

individuals. In 2011, 32% of all tax filers chose to itemize their deductions rather than claim the

standard deduction. In addition, the data indicate that both the share of tax filers who itemize their

deductions and the amount claimed by each tax filer as adjusted gross income (AGI) increases.

AGI is the basic measure of income under the federal income tax and is the income measurement

before itemized deductions and personal exemptions are taken into account. Although higherincome

tax filers are more likely to itemize their deductions and claim a larger amount of

itemized deductions than lower-income tax filers, the majority of itemizers (63.6%) have incomes

below $100,000, and 90.3% of itemizers have an AGI below $200,000.

 

Tax filers in different income ranges tend to claim different itemized deductions. In 2011, tax

filers in higher income ranges claimed deductions for charitable gifts, state and local taxes, and

real estate property taxes at higher rates than tax filers in lower income ranges. For example, the

deduction for charitable gifts was claimed by 45% of tax filers with an AGI between $50,000 and

$100,000, whereas it was claimed by 75% to 94% of tax filers with an AGI above $100,000.

Deductions for state and local taxes and the deduction for charitable gifts comprise a larger share

of itemized deductions as income rises.

 

The four largest itemized deductions are estimated to account for 17.8% ($195.7 billion) of the

approximately $1.1 trillion in tax expenditures in FY2014. These deductions are for home

mortgage interest, state and local taxes, charitable gifts, and real estate taxes.

These findings have several implications for policy options that would seek to reform or limit

itemized tax deductions. First, efforts to target limits on itemized tax deductions toward higherincome

tax filers are limited in the amount of revenue that can possibly be raised. Although

higher-income tax filers claim a larger average amount of deductions, these tax filers make up a

small share of itemizers.

 

Second, the structure of a limit on itemized deductions could affect which deductions a tax filer

might claim. Although a limit based on a percentage reduction in the overall tax benefits of

itemized deductions would not change the relative choice of deduction claims, limits based a flatdollar

value cap likely would alter deduction claims and possibly tax filer behavior. This could

happen if a tax filer has deductions that exceed a flat-dollar value cap, because the tax filer must

make a decision about which deductions to actually claim. Even if a tax filer cannot claim a tax

deduction for a particular activity, the tax filer might still engage in the activity for other reasons

(although possibly to a lesser extent).

 

Third, the structure of a limit on itemized deductions also has an effect on its ability to raise

revenue. Limiting deductions might raise the taxable income of some individuals, thereby

pushing them into a higher marginal tax bracket, and tax a higher share of their income at that

higher marginal tax rate. However, certain combinations of deduction limits may shift some tax

filers to claim the standard deduction instead of itemizing. In this case, the revenue increase by

limiting itemized deduction would be partially offset by more tax filers claiming the standard

deduction.

 

Contents

Introduction ...................................................................................................................................... 1

An Overview of Itemized Tax Deductions ...................................................................................... 1

Analysis of Tax Data ........................................................................................................................ 2

Who Claims Itemized Tax Deductions? .................................................................................... 2

Analysis of Selected Deductions ............................................................................................... 4

Which Itemized Deductions Contribute Most to Revenue Loss? .................................................... 7

Policy Implications .......................................................................................................................... 8

 

Figures

Figure 1. Shares of Tax Itemizers and Itemized Deductions Claimed, by Adjusted Gross Income (AGI), 2011 ................... 4

Figure 2. Distribution of Itemized Deductions Claimed, by Adjusted Gross Income (AGI), 2011 ......................................... 6

 

Tables

Table 1. Share of Tax Filers Claiming Itemized Tax Deductions and Average Deduction Claimed, by Adjusted Gross Income (AGI), 2011 ..................... 3

Table 2. Average Amount Claimed by Tax Filers for Various Tax Deductions, 2011 ...................... 5

Table 3. Amount of Itemized Deductions Claimed as a Share of the Adjusted Gross Income (AGI) of Itemizers, 2011 ............................................... 7

Table 4. Itemized Tax Deductions Estimated to Contribute Most to Revenue Losses in FY2014 ........................................................................ 8

 

Contacts

Author Contact Information........................................................................................................... 11

 

 

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