Another April 15 has come and gone, and with it have been the usual collection of grumbles, gripes, and protests about taxes. Most people feel that their tax burden is too high, though some like billionaire Warren Buffett, believe that they are paying too little in taxes.
The sense of fairness is important for a government's ability to collect taxes. And that makes it sound suspiciously like a Psychology question.
A paper by Claire Hill in the April, 2010, issue of Psychonomic Bulletin and Review looks at the Psychology of taxation. Hill is a law professor with an interest in both taxation and cognitive science.
This article looks at a number of factors that influence people's beliefs about the fairness of taxes. People have a number of general beliefs about what kinds of exchanges should be taxable, and they want tax law to fit with those beliefs. When tax law conflicts with those beliefs, then people think the tax is unfair.
For example, people believe that if a business sells a product to a customer, then the profits from that sale should be taxable. If the business sells a service, those profits are also taxable. But, if one neighbor helps another to fix a flat tire, and the other neighbor cooks the first a lasagna in exchange, that should not be taxable. Technically speaking, this trade is a barter arrangement and they owe taxes for the value of what they received.
As the article points out, this example seems extreme. These are neighbors and friends who are helping each other out on their own time. But, what if the first neighbor also happens to own a car repair shop and the second owns an Italian restaurant? This begins to feel a bit more like a business relationship, but still people often feel that it falls outside of what should be taxable.
People seem to assume that taxes should be collected only on exchanges that involve money. Perhaps this belief comes from our daily experience with buying things from the store, where we pay sales tax on purchases we make. If the government presses people to report the trades they make with neighbors as income, then people will view this as unfair because of their beliefs about what ought to be taxed.
This article also addresses how people's beliefs affect whether they will pay their taxes. People seem to have a mental contract with the government. If they feel that the government spends tax dollars fairly and that the tax system collects money respectfully, then they are willing to pay their share of taxes.
This psychological contract is consistent with a lot of arguments made by tax protesters. Anti-tax political cartoons often highlight individuals and corporations who get government support who seem undeserving of it. Tax protesters also portray tax collectors (like the IRS) as making strict and unfair demands on them. The point of these types of protests is to undermine other people's beliefs that the government is living up to its part of the contract.
Finally, this article points out that many people have a much more favorable view of people who evade taxes than of people who commit other crimes. The stereotype of someone who has been convicted for drug use or theft is very negative. But, people often think that people who find ways to evade taxes are hard working people who are being intelligent. The positive stereotype of tax evaders reflects that many people who do pay their taxes are still frustrated by the process. If the government is going to be successful at collecting the taxes it needs to function, then it would do well to look more carefully at the psychological aspects of people's beliefs about fairness.
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