MULTIBILLION-DOLLAR TAX QUESTIONS

James Alm (), Jay Soled () and Kathleen Thomas ()
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Jay Soled: Rutgers Business School
Kathleen Thomas: University of North Carolina School of Law

No 2302, Working Papers from Tulane University, Department of Economics

Abstract: Tax compliance in the United States historically hovers in the 80 percent range, costing the nation approximately half a trillion dollars annually in uncollected tax revenue. To foster greater tax compliance, the Internal Revenue Service (IRS) should employ whatever tools are at its disposal. Standard deterrence theory argues that increasing the audit rate and imposing stiffer penalties would foster greater tax compliance. There are political headwinds, however, that strongly suggest that these approaches are not currently viable. Instead, there is a low-cost method that could yield greater tax compliance. Drawing on recent and compelling social science research, the IRS should ask more information-revealing questions on tax returns. By engaging in this important exercise of strategic inquiries, dual benefits are likely to emerge: taxpayers would be more likely to report honestly to avoid acts of commission (e.g., lying); and the IRS would be in a better strategic position because it would possess additional, relevant information on taxpayer activities.

Keywords: Internal Revenue Service; tax compliance; behavioral economics; nudges; act of omission; act of commission (search for similar items in EconPapers)
JEL-codes: D91 H2 H26 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-acc, nep-iue, nep-pbe and nep-pub
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