While Americans may complain about paying taxes, a new working paper from the National Bureau of Economic Research (NBER) found that the vast majority are honest on their tax returns.
Economists Sara LaLumia of Williams College and James M. Sallee of the University of Chicago investigated whether people decide whether or not to commit tax evasion if broad benefits outweighs a tiny risk of being caught and punished.
LaLumia and Sallee compared data from before and after a 1987 change in the way tax laws required Americans to report their dependent children. The new law required more verification that the children existed — resulted in millions of previously claimed children going “missing.”
Prior to 1987, all a filer needed to do was list each dependent’s first name. In 1987 they were required to list a Social Security number as well.
“[M]any filers had been cheating before the reform,” the report stated. “Yet, the number of filers who availed themselves of this evasion opportunity is dwarfed by the number of filers who passed up substantial tax savings by not claiming extra dependents. By declining the opportunity to cheat, these taxpayers reveal information about their willingness to pay to be honest.”
According to the data published by the NBER, while it was relatively easy and low-risk to cheat, 97.5 percent of taxpayers resisted the temptation to lie about how many dependents live in their households. (Americans for Tax Reform evacuated after bomb threat)
“This is perhaps the more surprising statistic, given the substantial amount of income that could have been taken at relatively low risk by claiming fraudulent dependents,” explained the report. “Overall, we think this is striking evidence of a broad willingness to pay to be honest.”