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Freakonomics Radio

The Tax Man Nudgeth: Freakonomics

Marketplace Contributor Apr 3, 2013
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Freakonomics Radio

The Tax Man Nudgeth: Freakonomics

Marketplace Contributor Apr 3, 2013
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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.

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