Tax Cheating by Morris Donald;

Author:Morris, Donald; [Morris]
Language: eng
Format: epub
ISBN: 3407050
Publisher: State University of New York Press
Published: 2012-05-23T00:00:00+00:00

The unexpected global economic events of September 2008 are a powerful reminder of this assessment.

According to E. O. Wilson, author of Consilience, “In economics and the remainder of the social sciences as well, the translation from individual to aggregate behavior is the key analytic problem. Yet in these disciplines the exact nature and sources of individual behavior are rarely considered. Instead, the knowledge used by the modelers is that of folk psychology, based mostly on the common perception of unaided intuition.”30 The combination of using folk psychology to understand taxpayer behavior and a closed-end deductive economic model to predict the consequences of governmental actions—including changes to the tax code—means that legislators are operating with outmoded tools. It is no wonder that the tax gap is growing.

Is there a sound reason to believe that the tax gap problem is not a dynamic and evolving situation that will produce more tax cheating as knowledge of its magnitude and mismanagement resonates with previously compliant taxpayers, eroding confidence in the government's ability to effect a solution? In a book on tax reform, economists Slemrod and Bakija write, “Human nature being what it is, it won't work to just announce how to calculate the tax base and what tax rates to apply, and rely on taxpayers' sense of duty…. Some dutiful people will undoubtedly pay what they owe, but many others would not. Over time the ranks of the dutiful will shrink, as they see how they are being taken advantage of by the others.”31

Returning to the argument that one person's failure to pay taxes means another taxpayer pays more, someone opposed to tax cheating on moral grounds could say: “Yes in the short run and on a limited basis one taxpayer's tax cheating need not be made up by others. But in the long run and especially if a majority of taxpayers embarked on a plan to cheat on their income taxes, the total amount received by the Treasury Department would shrink so much that government services would have to be cut or curtailed or tax rates on honest taxpayers raised to unconscionable levels.” At that point for sure, some might insist, tax cheating is morally wrong because it results in the diminution of government services for those who have paid what taxes the rules require (though for some that amount is none). Compliant taxpayers are now getting less than they are paying for— less education, bumpier roads, reduced national defense and the like—and are in fact subsidizing the cheaters.

But if taxpayers are being hurt by tax cheaters—in that everyone now receives less government service—this applies to the cheaters as well; they also are receiving less government service. Are they now being cheated by their own cheating? And what about those otherwise compliant taxpayers whose income is below the threshold requiring them to pay, or who receive the Earned Income Tax Credit? Upon reflection, this debate is no longer about tax cheating but has strayed to a debate about tax policy, distributive justice, and

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