When it comes to taxes, more Americans than ever say, ‘Pay up’

Americans clearly want the IRS to be vigilant. Some 82 percent said in the survey that it was “very important” to them that the IRS “ensures that high-income taxpayers are reporting and paying their taxes honestly,” and 86 percent said the same about corporations.

Why Americans pay up

What influences Americans to voluntarily report and pay their own taxes honestly? Is it fear of being caught, as some economists have surmised? When asked to identify the factors that have a “great deal of influence” on their compliance, 81 percent said “personal integrity,” 40 percent said “third parties reporting income to the IRS,” and 36 percent said “fear of an audit.”

Gallup annually asks Americans around tax time how they feel about the amount of taxes they have to pay and the fairness of the tax obligation. While about half said last April that their taxes were too high, 60 percent also said the amount was “fair.” That view of fairness was shared across the income spectrum. Those living in households earning $75,000 or more a year were no more likely to believe they paid too much than those earning less than $30,000.

While the US track record is good, some see a danger from publicized cases, whether they be about individuals evading taxes, tax shelters, or foreign banks that solicit off-shore accounts.

Offshore corporate accounts remain a hot issue in times of mushrooming deficits.

“These stories can cause people to distrust the tax system, which is a bad thing for the whole country,” says Charles Rossotti, a former IRS commissioner. “Although tax attitudes have held up very well, just a small erosion in that attitude toward compliance could mean devastating risk.”

Tax gap: $345 billion

He points to the impact of the small noncompliance rate. The “tax gap” between what was due and what was paid in 2001 amounted to an estimated $345 billion. (Enforcement efforts and late payments brought that down to $290 billion.) Underreporting of taxes accounted for 82 percent of the gap.

One area where evasion may be common, Dr. Uslaner says, is failing to pay taxes for household help – the problem that led Ms. Killefer to withdraw her nomination as the federal performance officer. “It’s generally not big money, and a lot of people don’t give it much thought,” he says.

Still, the US tax system is in better shape than those in many parts of the world. In developing countries, the compliance rate is influenced by the degree to which people feel that their government is corrupt or that it provide good services, says Uslaner, who has studied other systems.

Benno Torgler, an Australian economist, has studied “tax morale” – the intrinsic motivation to pay taxes – in 40 countries. He found that a key factor having a significant positive effect on tax morale across many societies is religious observance, whatever the faith involved.

Why US compliance higher

Compliance is higher in the US, Uslaner says, for two reasons: Corruption is lower, and most taxes are taken out at the source, so the opportunity to evade is not that great.

Despite the distress over corrupt politicians in recent years, he adds, corruption here at home is “still a drop in the bucket compared to other countries, and even to the way it used to be in the US. Our standards of honesty for politicians have gotten stronger.”

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