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The Tax Man Nudgeth: Freakonomics
Moraiba Mata a tax professional at H&R Block, inputs clients tax information in Miami, Fla.
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Paying taxes is generally regarded as every American's least favorite activity in April. It's an angst-ridden experience -- so much so that more than half of us now pay someone else to do it for us. Still, there's a hefty chunk of the U.S. tax bill that goes unpaid each year -- about $450 billion.
"Most of the non-collected money, for example, could be tracked and hunted down if you went and required small businesses to really report everything about their activity," says Austan Goolsbee, a former White House economist. "But nobody wants to do that because it would be so onerous and such a pain in the rear for small business owners that, as a policy decision, they don't want to do it."
So how can we close that gap and make paying for government a little more ... fun?
Stephen Dubner looked at the work of a small British government unit called the Behavioral Insights Team, which uses the work of behavioral economists and other social scientists to inform new public policy initiatives. Among the experiments are small, cheap nudges, like changing the way people are asked to pay their taxes. In one trial, a note was handwritten on some letters saying, "This is important."
In another, there was an appeal to the herd mentality in all of us. "We simply tell people something, which is true -- we check by the way that it is true -- which is nine out of 10 people in Britain pay their tax on time," says the unit's director, David Halpern. "By putting that single bit of information into the top of a letter, it makes people much more likely themselves to pay the tax on time."
Dubner also talks to the psychology professor Dan Ariely, who says that people would feel better about paying their taxes if they could direct a small portion of their payment to the parts of government that they care most about.
This piece had me fuming today. It continues the never ending stigmata placed upon the self-employed. At 54, I've been the sole proprietor of a small landscape design build company. I say small since 6 months of the year I am the sole worker.
On Easter I enjoyed brunch with a handful of friends: two of us self-employed, and three corporate job holders. We had a lively conversation comparing our respective work lives and personal lives. The image persists of the independent contractor who charges whatever outrageous rates he can connive yet comes and goes as he pleases. My work ethic, reliability, and standard of workmanship is impeccable. And while the cost of living continually increases my rates have continued to drop to stay competitive. With every bump in this economy- real or imagined- people grip their money tighter and I suffer. Unlike my corporate friends, there is no 401k; no paid training; no health or dental plan; no gym at the job; no maternity leave; no paid sick days; no paid vacations; no pension. Anything I need or want, I am responsible for. It comes from my pocket. When I come home after a long day my work comes home with me- returning calls, working estimates, finding prices, securing advertising, maintaining a business network, garnering referrals, looking after my own reputation. The entirety of the responsibility for my continued livelihood climbs into bed with me each night. Know how hard it is to get affordable health insurance as a self- employed contractor? Oh, and liability coverage. And workmans' comp. for each employee I might hire. Any idea?
Homeowners want the skills I have to beautify their homes and they need my skills to fix them and rebuild them. You cannot export these jobs. But, you can and do import the cheaper, illegal labor even if by a passive allowance.
I would LOVE to pay my fair share of taxes. I love this country and feel incredible gratitude for living here. And with that a powerful sense of responsibility to contribute to the greater good. But, folks we the self-employed are struggling like you cannot imagine! Skilled, knowledgeable, ethical craftsmanship is dying a slow, painful death in this country! So, please, if you don't know what it's like to be self employed, keep your mouths closed and your judgements to yourselves! You do not need to find cute ways to make me want to pay my taxes. Your job is far more grand and important. Change the system before we disappear altogether and you have a very different, much larger set of problems to fix.
Dan Ariely is "spot on" with the notion of allowing the taxpayers to have a voice in how their remittances are spent (even if only 5% of their total tax bill). Furthermore, if his research is correct, such would be a "win-win" for the citizens of the United States of America: not only would the IRS collect more revenues, but also the individual (human) citizen taxpayers would have a way to combat the Supreme Court's ruling in the Citizens United case (it authorized corporations (legally defined artificial persons) unlimited expenditures to influence elections). Real people would speak effectively, with a new voice that would be heard, just by how they directed their "puny" financial contributions (at least backed by their votes). And these real people are TAXPAYERS (not freeloaders), who should be rewarded by having their voices heard (after all, they are paying the bills). The taxpaying democracy's consensus would be easily measured by being able to vote any portion of the tax dollars, and the corporations could be kept out by the direction of the portion only being allowed to be claimed on the 1040. Sadly, this scenario is probably "dead-on-arrival" because the apparent oligarchy by which we are governed through influence peddling would not allow implementation of such a revolutionary (but meritorious) idea as Don Ariely has suggested.
I was driving home this evening, after another 14 hour day, listening to NPR and I was moved enough to create a new account so I could comment on this interview with Stephen Dubner. You see I moved here 10 years ago from Jolly Ole England (paying taxes as requested by the government), not only have I navigated the immigration process in a legal (and very expensive) manner but I have started, and successfully run my own small business since 2005. Each week I sit with my own excel spreadsheet and I account for every dollar and cent that I earn and every dollar and cent that is an actual, genuine, business expense (and no, that does not involve four course dinners at the most expensive restaurants in town!). As instructed by my tax preparation specialist (another small business person in town!) I pay my quarterly taxes on time throughout the year and file my taxes with the rest of the OCD small business population before Valentine's Day!!
I don't believe that I am one who follows the herd - I believe that was raised to be a law abiding, rule following citizen who contributes what is fairly asked for because if everyone does the same our country will be a better place to live. I do not appreciate being grouped (without exception) with other small businesses who may not have the sames values as Austan Goolsbee's quote in Mr Dubner's interview portrayed. Maybe next time there could be a small nod of a job well done for those of us who do get it right and already report everything and don't need to be "tracked and hunted down"!
Interesting that the already-tax-paying (following "the rules" majority of the time?) folks are the subject of this interview. Can similar information like, a "cheap and simple nudge" or a "hand written message" that is "Fun!" be put on the tax-dodging, loop-hole seeking, offshore wealth accumulating rich folks also be part of this venture (to pay shares of shady, untaxed money?) What about the fair taxable amounts they do not pay. Might be an interesting comparison: what amounts could be gained from bringing them into the taxpaying fold? They, too, could direct a small portion of their payment to the parts of government that they care most about...changing tax laws, perhaps?
