Five Excuses For Cheating on Your Taxes

Last Updated Apr 15, 2010 3:41 PM EDT

Let me get this out of the way first: I'm not advocating cheating.

But I do want to point out the ugly incentives Americans have to cheat the tax man. A cursory look at the U.S. tax system reveals what a Frankenstein it's become.


1. Getting it wrong seems normal.
Americans do pretty well at cooperating with the tax folks. Even so, when social scientists estimate that one in three Americans gets it wrong (either inadvertently or knowingly), you may wonder why you should bother trying to get it right. Some economic research suggests when we think everyone else is cheating the tendency to cheat rises dramatically. And that can degenerate into a vicious cycle of dishonesty.

2. Our leaders can't get their own taxes right.
Remember when President Obama was new to the Oval Office and a string of his appointments admitted discrepancies or mistakes on their taxes? Timothy Geithner, for example, admitted he made mistakes on past filings and he agreed to pay back taxes. And Charles Rangel (D-NY), head of the House's main tax-writing committee, admitted to several tax snafus that eventually forced him to step down from his perch. How can the public be expected to fill out taxes correctly when the Secretary of the Treasury and chairman of the Ways and Means Committee cannot?

3. It's too complicated.
It's hard to have confidence in a system where the best advice to make sure your taxes are paid correctly is to hire an expert. About 60% of Americans use some form of tax preparation service. That's time consuming and costly.

4. Really: The complexity is beyond crazy.
By 2008, the tax code was 13,000 pages long. I haven't read it. You haven't read it. President Obama hasn't read it. It's a good bet Timothy Geithner hasn't read it. And I think even Ben Bernanke hasn't read it. But we're all responsible for every word in it. Everybody, and I mean everybody, is forced to cut corners by blatantly ignoring vast swaths of the code. Of course there's a big industry in "explaining" the code, and an even bigger one that just takes care of all those details for you. The US Treasury has estimated that the complexity of the tax code costs the country $125 billion a year.

5. Do you know anyone who has been caught cheating?
There's a good a chance that if you do something wrong or even lie through your teeth you won't get caught. In 2007, out of 135 million individual tax returns filed with the IRS, only 1 per cent were audited. If we don't expect to get caught cheating then we're more likely to cheat.

Without the benefits of clear rules and accountability, cheating becomes perilously easy to do, or to justify. But it doesn't have to be that way. There are lots of smart things we could do to turn it around.

Stay tuned.

Flickr photo: blmurch

  • Anna Bernasek

    Anna Bernasek's writing about finance and the economy has appeared in The New York Times, The Washington Post, the International Herald Tribune, Fortune, TIME, The Huffington Post and Australia’s Sydney Morning Herald newspaper. She has commented on economics as a guest on broadcast media including CNN, CNBC, public television and National Public Radio. Her first book, The Economics of Integrity, was published in February 2010.