Paul L. Caron

Monday, August 18, 2008

Morse: Using Salience and Influence to Close the Tax Gap

Susan C. Morse (Santa Clara) has posted Using Salience and Influence to Close the Tax Gap on SSRN.  Here is the abstract:

Most self-employed and small business taxpayers cheat on their taxes. In fact, in the aggregate, they fail to pay about half the tax they owe to the government, and this unpaid tax amounts to about $150 billion annually. This amount is about half the "tax gap," or the amount of tax due that the federal government does not collect.

This paper argues that more salient government communications and greater attention to principles of influence would improve existing and proposed policies to encourage self-employed and small business taxpayers to pay their taxes. Reversing the widespread tax evasion among self-employed and small business taxpayers requires changing the existing social norm of noncompliance, which in turn demands a better connection between the government's message and the experience of taxpayers. Policymakers should recraft their anti-tax-gap messages so that they grab the attention of the target audience and take advantage of established influence tools to leverage predictable taxpayer heuristics such as conformity to the compliance behavior of similar peers and availability bias.

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I offered my CPA services to the ticket scalpers outside of Turner Field. I wanted to help them report their income and to pay the proper sales taxes. When that failed, I thought that prostitutes would want to pay their fair share, but it turned out they wanted to screw the government, too. Plus, I didn't like their bartering proposal--and, neither did my wife. Forget the drug dealers. Oh, the illegal immigrants at the home sites couldn't even speak English. So, that business plan crashed and burned.

What anyone observing that could tell is that there is a tremendous underground economy and that evil U.S. businesses and corporations aren't even the tip of the iceberg.

Perhaps if our tax rates left enough for small businesses to survive, tax compliance would rise. But, no, we're hearing that the tax rates will go back up, instead, which may result in more non-reporting.

Now, to support my family because of all these tax cheats, I may have to resort to bootlegging. There isn't enough of the baseball season left for scalping tickets.

Posted by: Woody | Aug 18, 2008 12:44:55 PM

One can hope that Dr. Morse is not placed in charge of the program to communicate with the lagging taxpayers.

Wow, like speak English you know.

The economy dependent on illegals aliens is massive, with plenty of tax evasion by both employers and workers. Based on my research, the IRS cannot find a single case where illegals have been prosecuted for tax evasion. A few have been prosecuted for identity fraud. A few employers have been prosecuted, not many.

Posted by: save_the_rustbelt | Aug 19, 2008 4:48:36 AM

I am not surprised by this data. Big Business gets legislatures to write loopholes for them, while small business just helps themselves. Either way it is the same--corporations in America don't pay much tax. Maybe we should feel bad for the small business people who do pay their taxes--they end up paying a far larger share of their revenues than the big corporations.

Posted by: Anonymous | Aug 19, 2008 10:46:22 AM

Quite frankly I'm against people who give vent to their loquacity by extraneous bombastic circumlocution.

Posted by: Eric I. | Aug 19, 2008 3:35:15 PM