Heavy Lifting - thoughts and web finds by an economist
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Wednesday, January 10, 2007
There is a growing concern that as incomes continue to increase (either through productivity gains or cost of living adjustments), that many people will be pushed into the Alternative Minimum Tax. For a married couple filing jointly with tow kids, the total income required to kick into the AMT system is about $150,000 or so.
Today, the Tax Foundation released some data from IRS returns that ranked congressional districts by the percentage of returns that paid the AMT and by the average amount of (additional) AMT tax paid. In addition, the data contained the party of the current Congressman, implying, perhaps(?), there is some relationship between party affiliation and the amount of AMT or percentage of AMT returns.
I grabbed the data and threw them into STATA for a quick rundown to test this implied hypothesis. In many ways, the hypothesis is natural: generally, heavily democratic districts are also wealthy (although there are some notable exceptions) and therefore might also qualify moreso for the Alternative Minimum Tax.
Here's what I found from the Tax Foundation data. First some descriptive statistics:
The variable pctamt is the percentage of tax returns that qualified for the AMT in a particular district. On average it was about 2.2% with a high of 13% and a low of .2%. The variable amttax is the additional AMT tax paid on average (I suppose this is for those returns that qualified for the AMT). The average was $3,718 with a low of $1,550 and a high of $10,400. I created an indicator variable for whether the House representative was a Republican and another indicator variable for whether the state was Southern (defined as a member of the CSA).
I estimated a straight linear regression model to test for differences in means:
. reg amttax repubThe results suggest that Republican districts, on average, paid $177 less in AMT taxes. How about the percentage of returns that qualified for the AMT?
. reg pctamt repubRelatively little evidence that Republican districts have fewer AMT returns, on average.
There is concern that we haven't controlled for all of the unobserved, state-level heterogeneity in the simple model. One possible extension is to include fixed effects for states:
. xtreg amttax repub , i(stateid) fe r
The results suggest that Republican districts tend to pay about $143 less, after controlling for state fixed effects. However, the parameter estimate is not distinguishable from zero at the five percent level (although it is at the 8 percent level - this suggests that there is a roughly 92% chance that the parameter estimate is different from zero).
If Republican districts actually do pay less than Democratic districts, does this mean that Republican districts have lower incomes, for which lower AMT taxes would be natural, or do they have better CPA's?
My broader point is that, in naive analysis, it seems that the differences between Republican and Democratic districts are not economically (nor strongly statistically) significant.
STATA data file here
I'm glad that the democratic districts pay slightly more taxes, this indicates that at least democrats have some integrity in their ideology. I don't thinkthat these soPost a Comment
-called "conservative" republicans are very conservative at all with our money or our lives (people dying in Iraq). I'd say they're pretty liberal in those areas. Okay, that's enough of my rant. Here might be some useful questions. Do those democratic districts have benefits because of those extra taxes? Do those republican districts have potholes on every street and sub-standard hospitals? I really miss California where I don't have to worry about driving over some humongous pothole, or breathing everyone else's cigarette smoke any time I want to go to eat in a public place. What if I wanted to make some money as a bartender while I'm getting through college, I'd have to risk my life by exposing myself to second-hand smoke. Democrats ARE good for some things.
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