Almost 40 years ago, the Hoover Institutions’ Policy Review journal published a letter I wrote criticizing surveys published by several reputable political scientists. They showed that most Americans objected to higher taxes but also wanted the government’s services. The survey data seemed solid enough, but their analyses were defective.
They argued that since the voters wanted both lower taxes and undiminished government services, what they really wanted was higher taxes. It made no more sense than altering the “people want to have their cake and eat it too” cliche to be “people want to have their cake and eat it too, therefore they really want to keep their cake, not eat it.”
Those political scientists ran their surveys in reaction to the 1978 passage of California’s Proposition 13. This forced a serious tax reduction on the state. In reaction, liberal social scientists and pundits produced a steady stream of articles about the disastrous effects of Proposition 13. These continued until the Reagan tax reductions gave them a new text from which to preach their sermons about the sin of tax reduction. Few people, even in California, remember that notorious proposition today, but every annual tax season brings renewed celebrations of the glories of taxation that started back then.
The head cheerleader for this year’s taxation celebration is Vanessa S. Williamson, author of “Read My Lips: Why Americans Are Proud to Pay Taxes.” Analyzing her survey data and in-depth interviews of “many different Americans,” she concludes that most Americans see taxpaying as a “civic and moral responsibility.” Over 90 percent, she tells us, “agree with the statement that “It is every American’s civic duty to pay their fair share of taxes…Taxpaying is viewed as the price of citizenship.” One man told Williamson that taxes are “the cost of being an American.”
But wait, when we move further along in “Read My Lips,” we find that these same taxpayers, citing specific programs, are angry at the large amount of waste in government. They also resent the perks they think politicians exploit. This is her explanation for why “trust in government is at an all-time low for the federal government.” If we accept her reasoning, we must believe that Americans are proud to send money to a government they don’t trust, run by self-serving politicians who waste money.
It gets better. “America traditionally has very high rates of voluntary compliance” from taxpayers, Williamson writes. Here again the author stumbles over a paradox. Her interviews revealed that taxpayers feel resentment about how the rich dodge paying their fair share. “Their anger,” we are told, “comes from the actual experience of filing income taxes and the search for loopholes that would reduce their rates.” So, the American taxpayer, proud to pay taxes, strives to make himself humbler by looking for ways to reduce his tax liabilities.
It appears, moreover, that his “voluntary” compliance may be a little bit enhanced by fear. “Even though most have had no personal experience with the Internal Revenue Service, they describe it in draconian terms,” Williamson says. The word “draconian” is derived from Draco, the Athenian law-giver whose laws were “written in blood.” He ordained that the penalty for stealing a head of cabbage was a head for a head, or the thief’s decapitation.
Professor Williamson thinks the American fear of a draconian IRS is wildly exaggerated. Maybe so, but she misses the point. When fear works, punishment becomes redundant. And the fact remains that the IRS code contains quite specific information about the penalties for tax evasion. One might as well argue that the numerous penalties for theft encourage Americans’ voluntary compliance with the Eighth Commandment.
I’ve done a little informal surveying myself from time to time. I once asked a government class whether any students knew of a person on a cash income who reported it all. A single student said he thought his father did. All the other students looked at him as if he had grown a second, supplementary head. And when I asked a tax consultant to estimate the percentage of people who earned all or part of their income in cash reported every cent, he replied that it was probably in single digits.
We recognize that this is merely anecdotal evidence, but the 2007 Tax Gap Report from the U.S. Department of Treasury’s Internal Revenue Service relied on more scientific measurements. It concluded that most individuals with business income fail to pay all their taxes, although some appear to cheat more than others. The “Tax Gap” is the difference between what taxpayers owe on legal source income. In 2001 the gross Tax Gap was thought to equal $345 billion. After enforcement collection efforts and late payments, the net federal tax gap estimate for 2001 was $290 billion. The Report attributes $109 billion of the total to underpayment of taxes on business income by individuals.
If we take this twaddle about Americans’ voluntary tax compliance seriously, we must believe that people who earn a cash income are a race apart. They must have different DNA than Americans who receive regular payroll checks. They don’t qualify as real Americans.
I don’t have any surveys or interviews to back this up, but I have an idea: Voluntary compliance may have a close relationship to the penalties for easily detectable non-compliance.