The Psychology of Taxes: Why They Drive Us Crazy and How We Can Make Them Sane

Abstract

For most Americans, any tax is a bad tax, regardless of its actual economic or social consequences. This article argues that many negative reactions to taxes are the result not of economic or political defects in the tax laws, but of a combination of individual perceptual and cognitive distortions and a "dysfunctional" system of tax collection. It goes on to assert that correcting our distorted perceptions of tax law and restructuring of the tax enforcement system could balance the federal budget and simultaneously accomplish worthwhile social goals.

The article sets forth several suggestions aimed at depolarizing the relationship between the Internal Revenue Service and taxpayers, improving communication surrounding taxes, and improving both tax compliance and taxpayers' attitudes toward tax. First, individuals who know about tax evasion that would otherwise go undetected or unprosecuted should be permitted to bring private actions to enforce the law. Next, the relevant administrative procedures should be revamped so that individuals are financially rewarded for helping enforce and improve tax laws rather than, as is currently the case, for helping people avoid their legal obligations. Additionally, the Service should engage in a concerted effort to change the way people perceive tax laws by making effective use of media and enacting a tax amnesty program in conjunction with private enforcement of the tax laws. Finally, we should make intentional rather than accidental decisions about the behavioral impacts we choose to make through our tax laws and about the redistributive impacts we choose to make through nontax laws.

Keywords: Federal income tax, psychology of tax, tax amnesty program, private enforcement of tax law