An Academic View of Tax Fraud

A new book by Duke University professor, Dan Ariely, may shed some light on why so many people looking for tax relief tend to cheat on their income taxes.

The book is called The (Honest) Truth About Dishonesty: How We Lie To Everyone — Especially Ourselves. I should point out that, as far as I can tell from the 8 minute NPR piece that I heard yesterday, this book has nothing to do with taxes. But some of the conclusions drawn from one of his cheating experiments really seems applicable to tax cheats (including those looking for a way to overcome their tax debt and those simply looking for a windfall).

The experiment went something like this: people were given a number of simple math problems and were told that they would be awarded a dollar for each correct answer. At the conclusion of the quiz,and after the correct answers were given, the participants were instructed to go to the back of the room and shred their answer sheets. What they didn’t know is the shredder was rigged so that it only shredded the sides of the paper (so the experimenters could go back and check their honesty). Ariely found that many people were ok with fudging their scores to earn a couple extra bucks.

Then the experiment was altered slightly and the participants, instead of being paid directly for their correct answers, were given tokens which they cashed in for money nearby (1 token = $1). Ariely found that adding this extra step of separation increased the dishonesty of the participants.

The moment something is one step removed from money … people can cheat more and [still] feel good about themselves. It basically relieves people from the moral shackles.

~ Dan Ariely, Duke University

Then one additional variable was added to the experiment. One of the math quiz administrators was pretending to be distracted by a cell phone call in the middle of his instructions. As you might have guessed, Ariely found that this resulted in even more drastic cheating. Apparently, if people can come up with a good reason for cheating (i.e., like somebody was being rude by talking on their phone at an inappropriate time) then it’s that much easier to cheat.

Too many taxpayers fudge their numbers to get a bigger refund. Maybe people feel ok about doing this because the process seems so far removed from the government’s money. AND maybe they feel it is justified because they have been mistreated by The System at one time or another.