| This study examines the impact of paid tax preparers on tax liabilities and horizontal and vertical equity over the six year period, 1982-1984 and 1986-1988. Using a two-step estimation procedure to correct for potential bias due to self-selection of tax return preparation mode, tax liabilities of paid-prepared returns are found to be smaller than those of similar self-prepared returns, except for those at the very lowest income levels. However, while the mean tax liability differential ranges from {dollar}4 to slightly over {dollar}10,000 and is increasing in income, there is limited evidence that the savings is related to return complexity. The paid-preparer effect on tax liabilities is further reflected in the finding that progressivity (vertical equity) on paid-prepared returns is less than that of similar self-prepared returns, holding all else equal. However, the findings with regards to preparers' impact on horizontal equity are inconclusive. Finally, there is preliminary evidence that both the tax liability and equity impact of paid tax return preparation decreased after TRA86.; Together, these findings imply that tax preparers provide a direct economic benefit to taxpayers in addition to the time savings and other benefits of their use. In addition, they suggest that tax preparers may be having an unintended impact on the distribution of tax liabilities in that the progressivity of the tax system may be eroded by the use of paid preparers. Finally, the findings with respect to TRA86 suggest that this legislation, intended to improve overall equity by "leveling the playing field", may have been successful in somewhat mitigating the impact of paid-preparers on the distribution of tax liabilities. |
