Americans Don’t Cheat on Their Taxes

Americans Don’t Cheat on Their Taxes

Then there’s Greece, where economists have struggled to even calculate a VCR. According to the International Monetary Fund, more than half of Greek households pay zero income tax. Indeed, tax evasion is practically a national sport. Take the swimming-pool trick. After the 2008 recession, the government placed a luxury tax on private pools. When only 324 residents in the ritzy suburbs of Athens admitted to having one, tax collectors knew they were being swindled—but didn’t know how badly until Google Earth photos revealed the real pool count: 16,974. It’s now common to conceal chlorinated assets with floating tiles, army nets, and pool interiors painted to mimic grass.

What separates Americans from Greeks or Italians? It’s not income-tax withholding, which the U.S. pioneered but Europe has since copied. Higher tax rates may be one factor. Illegal shadow economies, in which goods are sold off the books for cash, are another. (Greece’s black market is the biggest in the eurozone, accounting for 21.5 percent of its GDP.)

Economists say a third factor, one with profound political implications, is tax morale. This is a catchall term for various forces that motivate people to pay taxes, including social norms, democratic values, civic pride, transparent government spending, and trust in leadership and fellow citizens. People are more inclined to fudge (yes, economists use that word) their tax forms if they think others aren’t paying their fair share.

None of this would seem to bode especially well for tax morale in the U.S., where faith in government has been dropping for decades. So why are Americans still paying? One possibility is that declining trust has been offset by reforms that made cheating harder. Since 1987, to take one example, tax filers have been required to list Social Security numbers for dependents, a change that generated almost $3 billion in revenue, as the number of dependents nationwide shrank by millions. (Suspiciously, some of the disappeared had names like Fluffy.)

A more worrisome possibility is that tax morale has lagged behind declining trust, and will yet fall. High-profile tax-avoidance schemes—like those detailed in the so-called Panama Papers, or by The New York Times’s reporting on the Trump family’s tax dodges—could help erode morale. “Our sense of right and wrong is dramatically influenced by other people,” says Dan Ariely, a professor of psychology and behavioral economics at Duke. “If people think that the government is corrupt and not doing the right thing,” he told me, they may be more inclined to say, “Oh, I don’t want to pay money to a government that is misbehaving.”

This article appears in the April 2019 print edition with the headline “Why Americans Don’t Cheat on Their Taxes.”

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Rene Chun is a contributing editor at Wired.

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