In sports, finances and life, impulse to cheat is strong

Tom Schaller says the wealthy have more incentive than the rest of us to skirt the rules

February 19, 2013|Thomas F. Schaller

"Cheat, cheat, never beat." Remember that catchy, foreboding maxim drilled into us as kids?

It's comforting to believe cheaters never win and winners never cheat. Unfortunately, there's ample evidence that cheating is rampant in almost every sphere of American life. And for every reported story of cheaters getting busted — be they professional athletes who use banned substances or those who illegally manipulate markets for profit — you can bet there's at least one case of somebody who escaped detection.

The sporting world has produced a nonstop parade of shamed (if not always ashamed) athletes who cheated their way to success. Those who were caught, from baseball stars Barry Bonds and Mark McGwire to cyclist Lance Armstrong and sprinter Ben Johnson, may have lost some of their records, awards or prestige.

But even if their fame is ultimately tainted, star athletes retain most of their accumulated fortunes. Faced with cheating your way to millions and hoping you don't get caught, or competing honestly yet at a disadvantage while others benefit from lax rule enforcement, is it any surprise how many people opt to cheat?

Alas, if only cheating were limited to sports. In the past, year five universities, including nearby Bucknell and George Washington, admitted to attempting to inflate their U.S. News & World Report rankings by submitting falsified performance data. The news makes it tougher to lecture the students from the affluent, Long Island, N.Y., high school who were caught in 2011 hiring expert surrogates to take their SAT college admissions exams.

"An increase in cheating reflects deep anxiety and insecurity in America nowadays, desperation even, as well as arrogance among the rich and cynicism among ordinary people," wrote David Callahan in his 2004 book, "The Cheating Culture: Why More Americans Are Doing Wrong To Get Ahead."

Mr. Callahan discusses the connection between cheating and rising inequality. The rich, after all, have greater incentives to cheat, whether by illegally shielding income from taxes or engaging in illicit behavior to attain wealth in the first place.

In a July 2012 report, the Tax Justice Network estimated that, conservatively, between $21 trillion and $32 trillion of global income is hidden in offshore tax havens. If we divide the lower figure by four (at roughly $15 trillion annually, the U.S. economy accounts for about a quarter of the world's gross domestic product), that means probably a minimum of $5 trillion in U.S income is currently shielded from taxation. Assume an average marginal tax rate of just 20 percent, and that's $1 trillion lost to the treasury.

Tax cheating is prevalent across the wealth spectrum. I've met middle-class folks who openly admit to claiming tax breaks they don't deserve. I know at least two people who deduct as a business expense the costs of purchase, maintenance, insurance and gas for cars they mostly use for personal travel. Heck, I'll cop to never having declared all my tipped wages while table-waiting during graduate school — an act unjustified by the fact that "everyone else did it."

At the other end of the economic spectrum, those who derive most of their income from assets get to declare, after the fact each April 15, what they owe the state and federal governments. This contrasts sharply with the experience of salaried or hourly wage middle-class workers whose income and payroll taxes are pre-emptively subtracted from their paychecks. Although some taxes paid disproportionately by the wealthy are unavoidably collected at the point of transaction — e.g., transfer taxes when properties are sold — in general the rich have the luxury of surrendering later what the rest of have taken from us ex ante.

This asymmetry makes cheating especially tempting to the rich. And guess what? "High-income people apparently evade more dollars, and for the most part evade more as a percentage of their true incomes … in part, but not entirely [because] they tend to receive the kind of income that is hard for the IRS to monitor," explains Stephen J. Dubner, famed co-author of "Freakonomics," in a 2009 paper about tax cheating.

Cheat, cheat, never beat? More like, "cheat, cheat, often beat." Sigh.


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