These edits could make taxpayers more honest

Tax forms—paper, electronic, and preparer-completed formats—could change to increase the "psychological cost of lying and the perceived risk of detection," writes Joseph Bankman. (Credit: Steven Depolo/Flickr)

More direct language on tax forms, both in paper and online, could cut tax evasion in the United States, say researchers.

For example, a suggested question on a tax form could read: “Did you receive cash or other compensation from providing services directly to customers and/or as an independent contractor? You must answer ‘yes’ or ‘no.'”

Most current tax forms do not include such direct wording, writes Stanford University law professor Joseph Bankman in a new working paper. Even a few changes based on social psychology insights could generate more tax revenue and taxpayer compliance, he writes.

“The explosion of research in social psychology over the past few decades, along with industry experience with data-driven interactive systems, suggests a different approach to the problem: Redesign the tax forms and online filing process to elicit more truthful responses from taxpayers,” says Bankman. His coauthors include the late Clifford Nass, a professor of communication at Stanford, and Joel Slemrod, a professor of economics at the University of Michigan.

Tax evasion costs federal, state, and local governments more than $400 billion a year or about 17 percent of all taxes owed, according to the researchers. Typical tools to discourage evasion include audits, penalties, and third-party reporting. But these efforts, the authors suggest, have proven too expensive or politically unpopular.

To encourage greater compliance, Bankman and the others propose changes to tax forms.

Clear and direct

Tax forms—paper, electronic, and preparer-completed formats—could change to increase the “psychological cost of lying and the perceived risk of detection,” writes Bankman. Asking more direct questions would put the burden on taxpayers to give explicit answers. Today, the tax forms contain too many general questions that allow for deceptive answers, he says.

“The difference between these two alternatives can be thought of roughly as the difference between lying through commission and omission,” the researchers write.

Social scientists, notes Bankman, have found that lying is cognitively more difficult than truth-telling. It requires activation of additional parts of the brain, as well as the sympathetic nervous system.

Research also shows that people are generally “cognitive misers,” preferring to minimize cognitive activity like lying that requires great effort. Lying also produces “cognitive dissonance”—a negative state of mind caused by inconsistency in behavior.

Appeal to morality

The researchers suggest that taxpayers should swear under penalty of perjury to answer the questions honestly before filling out their forms, and they should be asked more detailed questions about income sources.

Bankman says that research by Stanford psychologist Benoît Monin and others in social psychology suggests a different approach to moral suasion, one that asks people to change their behavior to fit within a particular identity connected to a key decision to be made.

In other words, research shows that when people hear “please do not be a cheater” rather than “please do not cheat,” they’re less likely to cheat.

Bankman suggests including a similar phrase in the tax form’s perjury section or at the top of each page.

Online questioning

This approach is called “adaptive questioning,” writes Bankman, and is often used in e-commerce due to its efficiency. Similar to a chat session found on many web sites, the data approach would involve an IRS questioner already having information at their disposal about the filer.

“In the tax context, it would allow the IRS to ask more focused questions, which should reduce evasion and audit costs. It could also benefit taxpayers by reducing filing time and eliminating the risk of subsequent audit,” he says.

Bankman explains that an interaction that feels like a conversation is intrinsically more pleasant than a standardized tax form with less personal language.

“For example, if the interaction is framed as a set of questions, the taxpayer should have the ability to ask a question back, for example, ‘Why are you asking this?'” he says.


Bankman says he isn’t calling for more government intrusion or heavy regulation of tax filing, but more direct communication and the use of information available through a data-driven approach.

“The proposals described would make the government a smarter user of information and require that the taxpayer verify some forms of information. Potential benefits include reduced evasion, reduced compliance costs and (more speculatively) a better filing experience,” Bankman and the others write.

Tax evasion is harmful, they contend, because taxes that go uncollected have to be found in other sources—as in higher tax rates for compliant taxpayers and sectors of the economy less associated with tax dodging.

According to the authors, the highest compliance rates are associated with people who report job wages and investments, while the lowest are found among those who run individual businesses, such as moonlighting professionals, the self-employed, and independent contractors.

Source: Stanford University