How to get rich people and politicians to pay their taxes

Posted by Barbara Kiviat Thursday, February 19, 2009 at 9:08 am

7 Comments

I have an idea. It's an entirely impractical idea. But so is running a democracy where minimizing what you pay in taxes is a badge of honor, as opposed to a blatant shirking of one's patriotic duty. I might not always like what our government spends money on, but that's why I vote and get involved and do all those other things that hold up my end of the social contract.

Anyway. Back to my idea, which was inspired by the news that UBS has admitted that it conspired to defraud the IRS and agreed to pay $780 million for helping hundreds, if not thousands, of wealthy Americans avoid paying taxes. Federal prosecutors think that from late 2002 through 2007, UBS helped clients hide $20 billion and evade some $300 million in taxes annually. Prominent people not paying their taxes is a problem we seem to be having a lot these days.

So I say from now on nobody pays their own taxes. Instead, each tax-paying citizen will be responsible for filing an income tax return for someone else--a complete stranger. When you are filing your own tax return, your economic incentive is to minimize what you pay. But were you to do someone else's taxes, your incentive would be the exact opposite--to have that person pay to the full extent of the tax code, since that money goes to help pay for things you probably feel that someone should be paying for (even if not you personally). You know, things like the Army and SEC fraud investigators.

The reason I think this will work is because I've seen it work. One time in a negotiations class, my classmates and I played a little game of trust. We all wrote down either "0" or "1" on a slip of paper. Then the slips of paper were collected and counted. If everyone wrote down "1", the number of points the entire class received was maximized, but anyone who defected and wrote down "0" would personally win more. We played a few rounds, and the number of defectors increased every time. Once you know one person is defecting (i.e., not paying their taxes), you feel like an idiot for not doing the same.

Then I commandeered the class. I told everyone that we were going to add a new layer to the game. After each person wrote down their "0" or "1," I'd collect all the slips of paper, mix them in a hat, and redistribute them. That new slip would be the one each person submitted to be counted, and got extra credit for if it happened to say "o."

That round, everyone wrote down "1." Turns out, when you know you're not likely to be the "self" in self-serving behavior, you start acting in the best interest of the group.

Like I said, this might be tough to implement if we're talking about doing each other's tax returns and not just drawing slips of paper out of a hat. But I'll leave those details to someone else to figure out. Because I'm not too hot on the system we've currently got going.

Barbara!