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Judge Posner suggests that "crimes, like tax evasion, . . . do not have an identifiable victim."

He should know better. The public fisc is the victim of tax evaders.


Judge Posner writes, "Americans may exhibit higher tax compliance than Italians, but Americans are not a more moral people than Italians."

That is a bold assertion, and I'm not sure on what basis the Judge makes it. I've had several Europeans tell me the opposite - that Americans are less moral people - feeling very confident about themselves. Of course what kind of "morality" index they are measuring is an open question, it seemed to coincide an awful lot with their politics.

Maybe you could take a poll and ask people "how important is it to obey the traffic laws with mild punishments?" and see if there are any differences.

Personally, I am willing to allow for at least some variation in the "average morality" of cultures and societies that influence people's decisions beyond a mere analysis of the expected consequences of one's actions.


Let me ask the obvious question:
Why would anyone commit a crime (tax evasion) and risks getting caught when there is another perfectly legitimate way of accomplishing the same goal (tax avoidance)?

Tax evasion is for suckers. Tax avoidance, on the other hand is, as they say, the only intellectual persuit that carries any reward of its own.


"[T]he benefits are, as a first approximation, merely income transfers, whereas the marginal costs of tax enforcement are social costs."

Seeing tax enforcement costs as mere social costs may surprisingly be wrong. Tax enforcement encourages honest book keeping which brings with it a variety of beneficial economic effects. Lack of corruption, or "transparancy" as it is called these days, is strongly associated with economic prosperity.

It is more than coincidence that a business owner who brings in their books to their CPA to have their taxes done often comes away with not only a tax return, but also advice on better management of their business in areas from proper inventory levels, to internal controls that can avoid employee theft, to a substantive review of the quality of the prices they are receiving on their significant long term contracts.

More accurate and honest book keeping also brings more general social virtues into the business place that are beneficial to business people by replacing transaction costs with trust.

These effects are neither intuitive nor obvious when merely looking closing at the marginal costs and benefits of change in a narrow sense. The costs of sloppy and dishonest book keeping are simlar to the costs of a typical car mechanic's messy habits. They are rarely obvious and when they arise are chaulked up to being normal and unavoidable. But, when Americans in Japanese automobile dealerships are forced to comply to Japanese norms of mechanics that mandate only tools currently in use can be out of the box and that all grease and oil spills must be cleaned up immediately, the overall program produces immense improvements in worker safety and productivity.


Judge Posner writes in the last sentence, "But taxes are not paid in public, so shaming is not a feasible alternative penalty to the legal sanctions for tax evasion". Greek tax authorities have seriously contemplated and occasionally threatened, to publish the names of famous people (singers, actors) along with reputable professionals (doctors, lawyers) who are accused of tax evasion, in an effort to do exactly that: make "shaming an alternative penalty to the legal sanctions for tax evasion".


Dear Judge Posner:

This one of the few blogs where I have seen a significant disagreement between you and Professor Becker.

For the record, I agree more with your own skeptical attitude regarding the efficacy of "morality" alone in promoting cooperation. What might look like compliance of norms out of morality might simply be the product of a concern for reputation effects or the product of a behavioral equilibrium (i.e., people often copy what other people do out of safety in numbers).

As I mentioned to Becker, I really the concept of "evolutionary stable strategies" -- that is, some behavarial strategies (whether to defect or cooperate) often depends on the behavior of the population as a whole.

Also, I'm not at all certain that tax evasion is as rare as Becker's blog would have us believe, since I would define evasion broadly to include the under-reporting of income. And although I am an academic and not a practicing attorney, I suspect that doctors and lawyers massively under-report that portion of their income that they receive in cash or in-kind.



Like any criminal endeavor, it is a question of percentages. Such that, say, 95% of the population stays within the bounds of the Law. Whereas 5% steps out side of it. The question is "Why"? I'd like to advance the idea, that it has nothing to do with morality or norms per se, but of life in general. Most individuals are far to busy trying to keep body and soul together than trying to step across the boundary. As the old adage points out, "Idle hands and minds are the Devil's workshop."


"When the cost of compliance with a norm is low, as in the case of picking up after one's dog, dirty looks alone may impose a cost greater than that of compliance"
I am formally highly trained in econ and finance, thus normally dismissive of 'soft' behavioral explanations, like dirty looks. However, the general area of behavioral econ is facinating and seems powerful. My point is that individual and group psycology and culture would seem to be a significant explanitory variable regarding many types of crime. Social accepance of small fudging of taxes among the wealthy, as you said, might be logically equivalent to the social accepatnce of pettty theft, and other destructive crimes in low income neighborhoods. Eliminating the social acceptability of destructive behaviors in particular cultures might be a key to subsequent prosperity and peace in those areas.


Mack, "Social Accepatbility" I like that phrase. It goes a long way in explaining a large of number of problems the Country faces today. Such as tax evasion or tax avoidance, to illegal immigration, or drug sales in low income areas. The solution lies not in writing new laws, but in the rigorous enforcement of those that exist and in establishing penalties commensurate with the criminal endeavor (making the punishment fit the crime). Remember, "A Law without teeth is no law at all". Something Congress with all it's money and education seems to have forgotten or never learned.


Neil? Are you sure? in light of the following facts: The US locks up its citizens at five to ten times the rate of the "civilized" nations for terms that are multiples of other advanced nations but is still a front runner on crime with gun slaughter rates, again five or more times most other nations.

I'm not sure of "the solution" but note the other nations educate their next generation more uniformly --- no "left behind" or prejudiciously underfunded school districts. Also with universal health care and something closer to a living wage being paid at the lowest income ranks there is surely less desperation and alienation in those countries.

Drugs may be "sold" in low income areas but surely it's not only low income buyers who've created such a lucrative underground economy. Canada and others consider drug addiction more of a sickness than a crime (or sin?) and have outreach programs that provide clean needle exchanges with no threat of arrest. It appears that when the addict is ready the outreach offers a path to treatment on demand, something else that is sadly lacking here. After all as good economists know "supply side" is not everything and a business or economy does not prosper w/o strong demand.

Oh, and illegal immigration? Considering what NAFTA and China have done to Mexico and it's a wonder that more of their 100 million have not come here. Is there a pol anywhere in the US who would tackle the "immigrant problem" more than a couple of feet below the border?


Jack, you glossed over the phrase, "making the punishment fit the crime". There are two sides to the 'punishment" coin, it's "retributivist" side and its "reformist" side.

As for the immigration issue and the drug trade (which is one of the root causes, along with gangs and guns) of most urban crime, both primarily due to a lack of economic oppurtunity in the communities, proves the old adage, "Idle hands and minds are the Devils workshop."


Neil: I've noted the recent trend of blaming immigrants for high crime rates, including the variation of displaced New Orleans refugees, but! so far I've seen no credible data that "they" are more crime prone than other of similar economic and educational demographics. Most of "them" are busily building our houses, making our restaurants work and tilling the fields for the enrichment of others.

As for the drug trade, Ha! the silly "drug war" dates, at least to my own youth. Looking at it with "economists'" eyes what could be better than to use the might, and purse, of the US Government to insure drugs will be scarce, high priced and very profitable? "Tighten the border?" so no one wants to chance a run for $10k? wait a week the price will rise to $20k and some starving desperado will take the job. It's ironic that the government puts many businesses under just by being huge and clumsy, but that in the drug biz they play a crucial role in its existence and profitability.

Today, I'd guess those profiteering in the private, prison-industrial-complex are another group of rent-seekers dependent on there being enough customers for their hotels. With tough competition in the rear view mirror I wonder how long we can get away with thumping our chests and claiming "We're the best" but continuing, with not even any debate, so many idiotic policies? Is the near doubling of the dollar/euro ratio a hint?


I'm not about to argue the viability of current policy. Either, Incarceration, Immigration, Illicit Drugs, Taxation or anything else. It all goes back to Congress's inability and failure to put "teeth" into it's legislation. Reason being, a failure to understand and develop a coherent and scientific theory of punishment. Which is also tied to an understanding of maintaining and developing economic oppurtunities within the local communties.


Neil: Hmmm, my guess is that considering our tremendous rates of very long terms of incarceration that the only policy you mention that is toothless is that of immigration.

For example tax compliance works because anyone paying a tax deductible wage wants the deduction; filing the deduction puts the recipient on the hook. In the matter of immigration it's only those desperadoes at the bottom who've little to lose who are on a sort of wink and nod "hook".

There are two groups involved: losers who are those who must compete with bracero levels of wages and working conditions and those who've lost their former jobs completely. In most of the nation that's everyone who used to do framing, masonary, sheetrocking and all the tough jobs in construction along with those in many other low paid, hard work, jobs in other sectors.

The winners; are those profiting from the cheap labor who are organized into groups such as Home Builders Assn, National Assn of Realtors etc, not to mention our plantation owners and restauranteurs. Older guys will recall McD's Ray Kroc buying a committment from Nixon to keep the min wage down for, the then, record "donation" of $60,000 and the game has coninued from there.

Hearing all the anti-illegal immigration rhetoric Newt Gingrich, at the peak of his power included clamping down on immigration in his famous "Contract", but was cut off at the knees by the political power of the "winner" group.

There is only one set of "teeth" that would be the basis for a serious policy. That would be each employer being on the hook for those he employs. Currently the builder, typically the only deep pocket in home construction can shrug and say he doesn't know who his subs hire, as Romney claims about his landscapers, and the subs supplying primarily labor can dissolve and reappear under a slightly different name if they wish.

So on this one, you are right "Congress" and those who fund and manage them are not ready to be serious about illegal immigration and all of their rhetoric is just a pony show.

Given the billions spent on the "drug war" with the results that truck loads are still found today the course of fencing or "tightening" the borders of a nation that gets as many visitors per year as we have population is beyond ludicrous.

THE task for those who are strongly opposed to illegal immigration is to form groups to hound their "reps" and create political power beyond that of their sponsors. Perhaps a side benefit would be to increase the turnover in the Senate from 5% per two year election cycle, basically the rate of retirement after an average stay of a quarter century.

As for the "drug war" there are probably a million young men locked up for very long terms over a petty drug charge who should be out here working and making a contribution after a short term of incarceration and being in an ongoing rehab program.... kinda like in the civilized nations where they've a fifth or less of our incarceration rate and less drug problems.

Terry Bennett

I have to go with Judge Posner on this one. Dr. Becker's post has the feel of mere hypothesis, and I propose this alternative which I think is more likely: people comply with tax law because the IRS has done an admirable P.R. job over the decades of building itself up to be the Number One entity on Earth with which a sane person does not want to do battle. They brought down Al Capone. They are aggressive and belligerent. If you give them any lip, you are guaranteed to dig your hole ten times deeper - they take it personally. You'd better have some deep pockets, even if you are right, which you may well be - tax law textbooks are packed full of cases which the IRS ultimately lost, but that didn't stop them from grabbing for the dough with the tenacity of a wolverine, knowingly arguing on the flimsiest of theories and planning to win by sheer attrition, which they do far more often than not. They command no moral authority whatsoever; they command fear. They are only "respected" to the extent that they are reviled. I've seen figures for at least some tax years that say the IRS operating budget was more than the amount they collected during audits. In a moral world, we'd come out ahead by shutting them down, but we don't, because the broad concensus is that if you take away the fear, compliance will fall off the low end of the chart. So, we continue to fund our own worst nightmare. And THAT is why people pay taxes.

(P.S. Nothing personal; I've never been audited, nor has any member of my family as far as I know.)


It is enjoyable to engage in civil differences of opinion. Seems like several threads are emerging that look to have a possible common theme of 'toleration'.
Illegal immigration, tax evasion, and socially destructive crime are tolerated in particular circumstances. My views are strongest regarding the last two issues.
Setting aside the equity of progressive rates, the complexity of the code, on its own, is materially inefficient and unfair. The inefficiency is the huge waste of resources devoted to record keeping and manipulation. Gross simplification of the rules that drives massive unemployment of tax lawyers and accountants would seem to be a step forward. As a financial professional, the tax code also continues to move me to anger in its basic incomprehensibility for the average citizen. This seems so unjust in numerous ways, not the least of which is consequent disrespect for the rules and toleration of cheats.
Growing up in an intense urban neighborhood and advancing to a specifically more 'civil' residential area delivers a rather simple set of contrasts. Petty crime is not tolerated in many prosperous, desirable areas as a precondition to peaceful lives and prosperity. Relatively strict local enforcement of statutes and citizen outrage at violations is conspicuously different. Jack, your rationalization of criminal convictions and incarceration hurts the disadvantaged disproportionately due to the factors just mentioned and is factually incorrect. Criminals locked up are in their exclusive ‘gated’ communities for good reason and typically have extensive destructive records, not an occasional judgment lapse. Crime rates decline when criminals are locked up. (duh!) Local peace and prosperity follow when education and legitimate commerce can be conducted without extra costs, risks, and material distractions.


Macko: I'll agree with you on the complexity of tax regulations being maddening for those in small business. But, for those of larger biz or corporations most of their record keeping would be necessary anyway for their own use, getting credit and for annual reports. For those who are strictly wage earners it's all pretty simple and probable one of the reasons for high compliance in that group.

You seem to have misinterpreted my brief comparison of the US policy of locking up people at far higher rates than those of the "civilized" nations for FAR longer terms including our being one of the very few to employ a death penalty and share the use of it on teenagers with only the likes of Libya. It's not tolerance that I advocate but learning from the more socially advanced nations what we're doing wrong, that we have to lock up, otherwise productive young folks at five or more times the rate of lock up in those nations and still have higher crime rates along with gun slaughter rates that are five and even ten times those of other developed nations.

With so much of our gene pool having come from those very nations that are doing so much better, I assume the US problem is not that of "bad seed".

There is, of course, the illiteracy factor, with those in prison having a rate of about 30% while our nation as a whole claims a literacy rate in the high 90's. That's why I mentioned our long tradition of "selectively" underfunding schools in the areas of low property values that is only now being remedied by court mandates for both EQUITY and ADEQUACY of school funding that are now in place in Texas, MO, NY and a number of other states.

If we are going to maintain any hopes of "being the best" I'd suggest we'd better consider the trade offs of funding the schools for ALL of our kids vs the social costs of crime and murder and the fact that our prison population has doubled in just a decade or so.


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