It’s Tax Time – Are You a Cheater?

I have a friend whom I perceive as a highly ethical person of good character. I was surprised to hear him casually say that he does not report all of his income on his taxes. It made me wonder how someone can strive to uphold their moral standards in some areas but not in others. Why do people willfully and flagrantly violate our tax laws?

It turns out that 30 to 40 percent of Americans won’t pay all of the taxes they owe. Aside from honest mistakes due to the complexity of tax laws, there are also intentional evasion, nonpayment, and underpayment.

Lots of people think it’s not morally wrong to cheat because they are suspicious of taxation and believe taxation itself is wrongful. Or, that tax revenues are being used for unwise purposes. Or, they think “everyone is doing it.” Therefore, it’s okay for them to do the same.

Rich people are the biggest offenders. They are far more likely to cheat on their taxes than poor or middle class people, according to social scientists Alstadsaeter, Johannesen and Zucman. The richer you are, the more likely you are to cheat big time on your taxes. The ability and probability to hide assets rise sharply with wealth. These scientists estimate that the top 1% hide 25% or more of its wealth from tax collectors in offshore holdings. They have the resources of tax evasion services by specialized banks and firms of lawyers. Cheating is easy to justify when you cast yourself as a victim to this kind of unfairness such as you think you are leveling the playing field, not cheating or restoring fairness.

Most people would agree that cheating is morally wrong, including cheating on taxes. One study by Lisa Shu, researcher, demonstrated that when people think they can get away with cheating, and they also think it would be worthwhile to cheat, they are often motivated to do so.

But here’s the rub. People want to consider themselves to be honest. Other research building on Shu’s study found that when people are reminded of the importance of being honest, they alter their behavior not to cheat. For example, participants in one study were first asked to recall as many of the Ten Commandments as they could before they took a test. Another study asked college students to sign their school’s honor code before a test. They were reminded of the ideals of being honest. It was also found that changing the wording from “Please don’t cheat” to “Please don’t be a cheater” changed behavior. The switch to “cheater” called to mind how the participants wanted to think of themselves as honest. Another study stopped participants from cheating simply by having them sit in front of a mirror. When given a moral reminder, it is hard from most people to cheat. People don’t cheat as much as they can get away with; rather they cheat up to the point at which they can continue to believe they are good people.

We shouldn’t cheat on our taxes, not because we necessarily care about the IRS, but because we care about being people of honesty and integrity.