Why Do We HATE Paying Taxes?

Two Cents
12 May 202110:15
EducationalLearning
32 Likes 10 Comments

TLDRThis video script delves into America's complex relationship with taxes, exploring why they are often viewed negatively despite their essential role in society. It discusses behavioral economics, such as loss aversion, which contributes to tax aversion, and touches on the tax gap and the potential for the government to use tax code to encourage positive behavior. The script also highlights the inefficiencies and complications of the current tax system, comparing it to more streamlined processes in other countries, and suggests that simplifying tax filing and addressing loopholes could improve public perception.

Takeaways
  • 😒 Taxes are often perceived negatively in American culture, with a history of celebrating those who defy them.
  • 🏛 Despite the dislike, taxes have been essential for the functioning of society for thousands of years.
  • 🧐 A thought experiment suggests that disconnecting the cost from the benefit, as in a year-end parking bill, can lead to anger and resentment due to loss aversion.
  • 📊 Loss aversion is a psychological concept explaining why people dislike paying taxes, as they feel the loss more intensely than they appreciate gains.
  • 🚨 The constant reminder of taxes through pay stubs can create a sense of loss and anxiety, without a corresponding awareness of the benefits received.
  • 🤔 Many people are unaware of the extent to which they benefit from social programs funded by taxes.
  • 💰 The tax gap, the difference between what is owed and what is paid, is significant, with an estimated $406 billion in unpaid taxes annually.
  • 🏘️ Tax expenditures, like deductions and penalties, are used to influence behavior but tend to benefit the wealthy and complicate the tax code.
  • ⏱ The complexity of the U.S. tax system leads to an annual cost of $140 to $215 billion in time and money for taxpayers.
  • 🌍 In contrast to the U.S., some countries provide a simplified tax filing process, sending pre-calculated tax forms to citizens.
  • 💼 Lobbying by tax preparers and anti-tax activists has contributed to maintaining the complexity of the U.S. tax system.
  • 🤝 Despite the challenges, Americans have a high voluntary compliance rate with taxes, viewing it as a civic duty.
Q & A

  • Why do many Americans view paying taxes negatively?

    -Many Americans view paying taxes negatively due to the perception of it being a stressful process filled with paperwork and the feeling that their hard-earned money is being taken away by the government.

  • What is the historical context of celebrating those who defy taxes mentioned in the script?

    -The script refers to figures like Robin Hood and events such as the Boston Tea Party, which are part of the cultural narrative that celebrates those who resist or defy tax systems, often seen as oppressive or unfair.

  • How does the script describe the concept of loss aversion in relation to paying taxes?

    -Loss aversion is described as a psychological phenomenon where people perceive the year-end tax bill as an intrusive penalty because the cost is disconnected from the immediate benefit, leading to a strong negative emotional response.

  • What is the 'tax gap' and why does it exist?

    -The 'tax gap' refers to the difference between the taxes owed and the taxes voluntarily paid. It exists due to tax evasion, which is more common among those who pay taxes at the end of the year rather than through payroll withholding.

  • How does the script suggest the government can use the tax code to influence behavior?

    -The script suggests that the government can use the tax code to encourage positive social behavior through 'nudges' such as charitable deductions and mortgage deductions, and discourage undesirable behavior through tax penalties.

  • What is the estimated annual cost of the tax filing system to the U.S.?

    -The tax filing system is estimated to cost the U.S. between $140 and $215 billion a year, including the time and money spent on professional tax preparers and tax preparation software.

  • Why is the U.S. tax filing process more complex compared to other countries?

    -The U.S. tax filing process is more complex due to the lobbying efforts of the tax preparation industry and anti-tax activists who prefer a system that is perceived as difficult, thereby ensuring a demand for their services and maintaining negative perceptions of taxes.

  • How does the script compare the U.S. tax revenue to that of other OECD countries?

    -According to the script, U.S. tax revenue equals 24% of the gross domestic product, which is well below the 34% weighted average for other OECD countries, with only Chile, Ireland, and Mexico having lower percentages.

  • What is the voluntary compliance rate for tax payments in the U.S., and what does it indicate?

    -The voluntary compliance rate in the U.S. is higher than most industrialized nations, indicating that despite the negative perceptions, Americans are generally good about paying their taxes honestly and on time.

  • What are two suggestions made by behavioral economists to improve America's relationship with taxes?

    -Behavioral economists suggest making it easier for ordinary people to file taxes and closing the loopholes that make the tax system feel rigged against them as two ways to improve America's contentious relationship with taxes.

Outlines
00:00
🤔 The Perplexing Perception of Taxes

The script explores the deep-seated aversion to taxes ingrained in American culture, tracing it back to historical figures and events like Robin Hood and the Boston Tea Party. It highlights the paradox that despite taxes being essential for societal functioning for millennia, they are often viewed as a burden or theft by the government. The script introduces the concept of 'loss aversion' to explain why people feel resentment towards paying taxes, as they perceive it as a loss rather than an investment in societal benefits. It also touches on the tax gap, behavioral economics, and the psychological impact of tax payment reminders on paychecks.

05:01
📊 The Complexity and Cost of Tax Filing in the U.S.

This paragraph delves into the complexities of the U.S. tax filing system, noting the average American spends 11 hours and the financial burden of around $10 billion annually on tax preparers and software. It contrasts this with the streamlined processes in countries like the Netherlands, Sweden, and Japan, where the government provides pre-calculated tax cards. The script discusses the vested interests of tax preparers and anti-tax activists in maintaining the complexity of the tax code and the high voluntary compliance rate among Americans despite their tax-related anxieties. It suggests that simplifying tax filing and addressing tax loopholes could improve public perception and the country's contentious relationship with taxes.

10:03
🏛️ The Role of the IRS and the Call for a Better Tax System

The final paragraph emphasizes the role of the IRS as a service funded by taxpayer money, suggesting a reevaluation of the public's perception of the agency from a 'Boogeyman' to a 'friendly paycheck shrinker.' It points out that despite the U.S. having relatively low taxes compared to other OECD countries, there is a high level of anxiety about tax payment. The script concludes by highlighting the importance of making tax filing easier and closing loopholes to foster a more positive relationship with taxes, and it acknowledges the support from Policygenius for PBS and invites viewers to learn more about tax expenditure through a linked video.

Mindmap
Keywords
💡Taxes
Taxes refer to compulsory financial charges or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures and services. In the video, taxes are a central theme, illustrating the cultural aversion to paying them and the historical context of tax evasion and avoidance. The script mentions the stress and perceived unfairness associated with taxes, as well as the benefits they provide to society.
💡Cultural DNA
Cultural DNA is a metaphorical term used to describe the inherent and deeply ingrained beliefs, customs, and behaviors that are characteristic of a particular culture or society. The video uses this term to express the idea that the dislike for taxes is a fundamental part of the American psyche, with historical examples like Robin Hood and the Boston Tea Party to illustrate this point.
💡Progressive Taxation
Progressive taxation is a system where the tax rate increases as the taxable income increases. The video script alludes to the idea of 'robbing from the rich to feed the poor' as a form of aggressive progressive taxation, suggesting a system where wealthier individuals contribute a larger share of their income to support public goods and services.
💡Loss Aversion
Loss aversion is a concept in behavioral economics that people prefer avoiding losses to acquiring equivalent gains. The script explains this concept in the context of taxes, where the perception of a loss (the amount taken from paychecks as taxes) causes a negative emotional response, more so than the positive feeling of earning money.
💡Tax Gap
The tax gap refers to the difference between the taxes owed and the taxes that are actually paid. The video script mentions the tax gap as an issue in the U.S., estimating it to be around $406 billion a year, and linking it to the tendency of people to cheat on their taxes to avoid losses.
💡Tax Expenditures
Tax expenditures are revenue losses attributable to provisions in the tax code that allow for special exclusions, exemptions, or deductions. The video discusses how these are used as nudges to encourage certain behaviors, but also notes that they tend to benefit the wealthy and corporations more, due to their resources to take advantage of these provisions.
💡Nudges
Nudges are subtle influences that aim to alter people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives. In the context of the video, tax code nudges are used to encourage positive social behaviors like giving to charity or owning a home, but they can also reinforce the perception of taxes as punitive.
💡Compliance Rate
Compliance rate, in the context of taxes, refers to the percentage of taxpayers who pay their taxes honestly and on time. The script highlights that despite the general dislike for taxes, the U.S. has a high voluntary compliance rate, indicating that most Americans view tax payment as a civic duty.
💡Tax Preparers
Tax preparers are professionals who assist individuals and businesses in preparing and filing their tax returns. The video script points out that the complexity of the U.S. tax system has led to a lucrative industry for tax preparers, who lobby against simplification and benefit from the status quo.
💡Anti-tax Activists
Anti-tax activists are individuals or groups that oppose taxation, often advocating for reduced tax rates or the elimination of certain taxes. The script suggests that these activists benefit from the negative emotions associated with taxes, using them to further their cause and persuade people that taxes are inherently bad.
💡Tax Policy Center
The Tax Policy Center is a non-partisan organization that provides independent tax policy analysis. The video cites the center's data to compare U.S. tax revenue as a percentage of GDP with that of other OECD countries, showing that the U.S. has relatively lower taxes but higher levels of anxiety about them.
Highlights

Taxes are often viewed negatively in American culture, with a history of celebrating those who defy them.

Taxation has been a part of human civilization for 5,000 years, seen as a necessary price for a functioning society.

Most people would likely choose to pay taxes for the benefits they receive rather than go without them.

Behavioral economists suggest that disconnecting the cost from the benefit can lead to resentment and loss aversion.

Loss aversion is a psychological concept explaining why people hate paying taxes more than they like gains.

The lack of benefit awareness when paying taxes contributes to the perception of being ripped off.

The tax gap, the difference between owed and paid taxes, is estimated at around $406 billion annually.

Tax expenditures are used to influence behavior but often benefit the wealthy and corporations more.

Filing taxes takes the average American about 11 hours, contributing to the complexity and stress of the process.

The U.S. tax system costs between $140 and $215 billion annually in time and money.

In contrast, countries like the Netherlands, Sweden, and Japan have simplified tax filing processes.

Tax preparers and anti-tax activists have lobbied against simplifying the tax filing process.

Americans have some of the lowest taxes in the world but the most angst about them.

Despite issues, Americans have a high voluntary compliance rate for paying taxes.

Behavioral economists suggest making tax filing easier and closing loopholes to improve the relationship with taxes.

The IRS is funded by taxpayers and serves them, suggesting a reframe from 'Boogeyman' to 'friendly paycheck shrinker'.

Policygenius is an insurance marketplace offering a platform for insurance comparison and guidance.

The video concludes by encouraging viewers to understand what they are buying with their taxes.

Transcripts

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Related Tags
TaxationCultural AttitudeBehavioral EconomicsLoss AversionTax EvasionSocial ProgramsIRSTax CompliancePolicygeniusTwo Cents