Simplifying tax filling and increasing compliance — a behavioral experiment

Jan-Emmanuel De Neve and Cait Lamberton explain this simple way to simplify taxes and increasing compliance. They say by making taxpayers more voice in the whole exercise of taxes generates positive results.

They start in a nice way saying one is not sure what citizens dislike more – taxes or death :-):

Two things are certain in life: Death and taxes. As evidenced by Facebook groups like ‘I Hate Paying Taxes!’, it’s not clear which of the two people dislike more. Indeed, people can prefer to pay more for a product and avoid tax than get the product for cheap but know that the government is taking a cut (Sussman and Olivola 2011). This ‘tax aversion’ is no small matter. The US has an estimated annual ‘tax gap’ of almost $400 billion due to non-compliance (Internal Revenue Service 2012), while in the UK the gap stands at £42 billion (HMRC 2013).

In recent research, we tackled a tough problem: Could we make people hate taxes a little less, and in the process raise tax compliance? We found that there are two critical dynamics underpinning people’s tax aversion (Lamberton et al. 2014):

  • First, taxpayers have little sense of where their money is actually going – unlike buying a sandwich when you know exactly what you get for your money.
  • Second, taxpayers feel that they have no influence in the decision-making as to where their taxes will be spent. As a result, paying taxes can feel like dumping a lot of money into a black hole – no wonder it can be so frustrating.

They conduct two experiments and in both they give people some voice towards filing taxes and compliance. In both results are positive.

So their simple suggestion is give people more voice. Make forms more interactive putting responsibility on the taxpayer:

Our research suggests that the annual tax filing process offers an unexploited opportunity for governments to engage with taxpayers – simply by making the tax form more interactive. Doing so can increase tax compliance, while empowering citizens and improving their attitudes towards taxation.

Furthermore, the costs are low. Most of us have to go through the tax process every year, whether on paper or online, and our intervention involves adding just a few questions to existing forms. Our recommendation? Give taxpayers a voice!

Could be an interesting try. Though, this will take more time of taxpayers and has to be balanced.

For most of us, taxpaying is one headache and generates fear more than anything else. Any process towards simplification and friendlier form would help. It is as if govt is doing us some favor by pushing us into paying taxes. We do them a favor by paying taxes as that is how they run and manage themselves. It should be simpler and friendlier.

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