Some characteristics and environmental sensitivities of taxpayers taking the United States political contribution tax credit during 1979-1982

Abstract

This study was designed to determine characteristics of taxpayers taking the political contribution tax credit from 1979 to 1982. This work is similar to studies on the effectiveness of tax incentives in promoting positive externalities and studies on the effect of tax law provisions on economic behavior. The study might provide useful information to policy makers as well if tax incentives for political donations are reconsidered by Congress. The study evaluates quantitative and indicator variables believed to influence the decision of the taxpayer to jointly make a contribution and claim the credit. Empirical data used in the study have been obtained primarily from the Arthur Young Tax Research Data Base tapes for 1979 to 1982. Final model variables were established through the use of logistic regression analysis. Statistically significant models have been developed for each period tested. The explanatory power of the models is low. Income level was associated with the credit for each period tested; several other variables were also associated with the credit for over half of the periods tested. Taxpayers with income over $30,000 are clearly more likely to take the credit than those with AGI under $30,000. Although statistically siqnificant models were also developed without income as a variable, the explanatory power of such models was greatly reduced. Classification accuracy of the various models developed, about 70%, is inferior to classification accuracy of a model assuming no taxpayers took the credit. The Arthur Young Tax Research Data Base is found to be representative of the American population for state of filing in 1979 and 1980. The statistical siqnificance of the model is encouraging both from the standpoint of understanding use of the political contribution tax credit and from the standpoint of developing demographic models of taxpayer behavior for other tax provisions. This encouragement should be tempered since the explanatory power of the models is low. Congress made a rational decision by eliminating the political contribution tax credit, because of ineffectiveness of the credit in increasing the base of political donors and because of threats to vertical equity.