A research study by Microsoft Research and the University of Michigan shows shaming tax delinquents could cause them to pay their bill.
The Internal Revenue Service has had its budget cut by as much as 30 percent over the past decade, and there are continuing reports that the IRS will have difficulty getting tax returns out in a timely fashion, or chasing down tax cheats as it has in the past.
The IRS considers two different kinds of people who do not pay their taxes or don’t pay the correct amount. There are tax evaders, who hide taxable income, and there are tax delinquents, who just choose not to pay what they owe.
Researchers at Microsoft Research, the research arm of the technology giant, and the University of Michigan have found a way to get tax delinquents to pay up. It’s called “tax shaming”, or telling the world that the taxpayer is not paying his taxes.
Researchers Ricardo-Perez Truglia of Microsoft and Ugo Troiano at the University of Michigan discovered that more than half of all states publish lists of tax delinquents in print and online. With the blessing of the states, the researchers sent letters to approximately 34,000 people on those lists, dividing them in half so that each half got a different letter.
The first half got letters detailing (probably for more than the first time) the financial penalties that they would incur if they did not pay the amount owed. The second letter included their name, names of other people from the surrounding area who were delinquent on their taxes, and the implication that the information was being made even more public, so that neighbors and their community would be aware of their tax status.
Over a period of just 10 weeks, the payments from tax delinquents who got the second letter were 20 percent higher than the payments from delinquents who got the first letter, an indication that “shaming’’ the delinquent taxpayer worked.
The researchers said the “shaming’’ worked best with taxpayers who owed small amounts of money. They examined results from different amounts of tax debt, and found that those delinquents owing more than $2,700 did not pay up.
“We provided evidence from a field experiment suggesting that financial and shaming penalties do indeed increase the speed of payment,’’ the researchers wrote. “Additionally, our evidence suggest that financial and shaming penalties can target different types of taxpayers. The evidence suggests that combining financial and shaming penalties can be welfare-enhancing. Our research provides support for the use of shaming penalties by tax agencies in the United States and the rest of the world.”
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.