April 15th – Tax day and cheating

April 14, 2009 BY danariely

Will Rogers once said that “The income tax has made liars out of more Americans than golf” and I worry that he was correct.

When I came to the US I was very excited with the tax system. I thought that as a matter of civic engagement this was wonderful ritual, where once a year citizens reflected on their contribution to the common pool of taxes — both for good and for bad.  Thinking about the benefits of taxes but also worrying about the waste and protesting against it.  Only later did I realize that the tax code is so complex and annoying that instead of thinking about social issues, taxation, and waste –it is mostly a day of annoyance (in fact more than one day) and rather than promoting civic mindedness it is mostly about tying to find loopholes in the tax code that will decrease our individual payments.  

One reason for this is that the tax code is so confusing and ambiguous (is taking your sister for dinner and talking to her about work a legitimate business expense?  What if she gives you a good idea that you later use?) that we are drawn to the details of how to fit our particular pattern of expenditures within this messy tax code — and while playing this game we also try to minimize our payment.  

So, what do we do to fix this problem?  First I think that we need to simplify the tax code to make the process less time consuming, less annoying, and maybe even making it more equitable.  Second, I think that we can ask citizens how they want the government to use their tax money.  This does not have to be 100% of the tax, and instead the tax forms can ask us how we want to allocate 10% of our taxes between education, clean energy, health, etc.  By doing so I think that we can increase the care and scrutiny that should come with tax season and more generally increase civic engagement.

Finally – I cannot post something about taxes without making some comment about how to decrease cheating.  My suggestion is to have the first question on the tax form asking us if we want to contribute $25 to a task force to fight cheating and corruption.  The people who would say “yes” to this question would have committed themselves, and some money, toward honesty — and it is likely that they would continue behaving more ethically while filling in the rest of the tax form.  And for the people who answer “no”?  Maybe they should audited.

Happy tax day