TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, March 12, 2019

The Source Of American Exceptionalism: Tax Morale

AtlanticThe Atlantic, Why Americans Don’t Cheat on Their Taxes:

If such a thing as American exceptionalism remains, maybe it can be found in this: Despite deep IRS budget cuts, an average audit rate that has plunged in recent years to just 0.6 percent, and a president who has bragged that dodging federal taxes is “smart,” most Americans still pay their income taxes every year. Even more remarkable, most of us feel obliged to pay. To quote the findings of a 2017 IRS survey: “The majority of Americans (88%) say it is not at all acceptable to cheat on taxes; this ethical attitude is not changing over time.”

True, tax crooks might not confess their real feelings in an IRS survey. But other data confirm that the U.S. is among the world’s leaders when it comes to what economists call the voluntary compliance rate (VCR). In recent decades, America’s VCR has consistently hovered between 81 and 84 percent. Most countries don’t calculate their VCR regularly, but when they do, they lag behind the U.S. One paper that gathered what comparative data were available reported that Germany, the top European Union economy, had a VCR of 68 percent.

Other countries score worse, among them Italy (62 percent), the site of a sprawling tax scandal in which about 1,000 citizens were charged last year with bilking the government out of 2.3 billion euros in tax revenue. The public didn’t seem terribly bothered; ex–Prime Minister Silvio Berlusconi, who was convicted of tax fraud in 2013, may have tapped a common sentiment when he said back then that “evasion of high taxes is a God-given right.” ... Then there’s Greece, where economists have struggled to even calculate a VCR. ...

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.

(Hat Tip: Stephanie McMahon.)

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Paying taxes is not “voluntary” if you can go to jail for tax evasion

Posted by: Enrique | Mar 13, 2019 12:03:03 AM

It's laughable to read that Americans don't cheat on their taxes, laughable to read that America is among the world leaders in so-called voluntary compliance rates (VCR).

Voluntary? The only American's who don't cheat on their taxes are subject to mandatory employer tax withholdng and third-party reporting to the IRS. There's nothing "voluntary" about it.

Those not subject to mandatory withholdng and reporting--those who report their own incomes, and pay taxes based on the figures they supply--pay little more than a third of what they should. For more on this sorry situation, and some suggestions on how it might be fixed, read this:

Posted by: Gerald Scorse | Mar 13, 2019 5:15:51 AM