taxes

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Help us if you can. The automatic tax return is one of our favorite dozen nudges. So far we’ve got Denmark, Norway, Australia, Belgium, Chile, Portugal, Spain, and France, and (soon) the Netherlands.

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Robin Hogarth, of Universitat Pompeu Fabra in Barcelona, Spain, sends along a report that the Spanish government has a version of the automatic tax return.

Each year you receive a form –called the “borrador” — that lists all the sources of income and interest payments that have been reported to the government and, if you agree that it covers all your transactions, you can sign off on it there and file your taxes automatically. I believe that this system has existed for some 3 or 4 years already!!

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California has put together a series of light public service spots – spoofing the typical serious public service spot – for its Ready Return tax service, which has received the official Nudge seal of approval. Below are a couple of those spots. Just curious: How does the guy in the first spot afford a BMW?

[youtube="http://youtube.com/watch?v=QfP-rfOkLx4"]

[youtube="http://youtube.com/watch?v=capwARHaDAE&feature=related"]

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In this week’s Freakonomics column Steve Levitt and Stephen Dubner write about an idea called pay-as-you-drive (PAYD) auto insurance, recommended by some economists, and recently adopted by Progressive. Businesses are not the only organizations experimenting with PAYD systems, either for auto insurance or as a potential substitute for a gas tax.

PAYD in the States

Last year, King County government in Washington State, using federal dollars, split the cost of a $5-million PAYD auto insurance pilot program with Unigard.

Oregon has passed a bill that provides corporate income tax credits to insurance companies of $100 per PAYD vehicle (up to $300 per policy). The tax credit extends through 2010.

Texas also passed a bill giving insurance companies the authority to offer PAYD policies, but the idea doesn’t appear to have taken off because companies do not receive tax breaks as they do in Oregon.

PAYD instead of the Gas Tax?

This year, 2,700 drivers in six states – Texas, Maryland, Idaho, California, Iowa, and North Carolina – are helping test a PAYD tax structure that could replace the existing gasoline tax structure. In the PAYD structure, people would be charged on the basis of the number of miles they drive. Using technology provided by the University of Iowa Public Policy Center and dollars from the Federal Highway Administration, drivers’ cars are equipped with satellite and computer equipment that will calculate monthly bills based on the number of miles driven, which will then be compared to the amount of money they currently pay in gas taxes. Researchers will collect two years worth of data, and results should be available in 2010.

A PAYD tax structure should be less appealing to drivers with fuel efficient cars since the savings they reap through less fuel consumption will be lost to taxes paid on the additional miles they drive. So a Hummer owner who only drives a couple times a week may pay less than a Prius owner who drives everyday – even though their tail pipes have probably spewed a similar amount of carbon dioxide into the air. The purpose of the PAYD tax structure is to find new ways of increasing revenue for roads and highways (revenue has been flatting over time and the federal gas tax hasn’t been raised since 1993), rather than give an added bonus to some group of environmentally conscious or safe drivers

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The Tax Prof has an interactive applet for those curious about exactly how your taxes are distributed. Below is a hypothetical example of someone who pays $25,000 in taxes. (You can adjust the calculations based on your own payment.)

Of the $25,000 you paid in taxes:

$10,500 goes to Past and Current Military

$5,500 goes to Health

$2,500 goes to Interest on Non-Military Debt

$2,250 goes to Anti-Poverty Programs

$1,000 goes to Education, Training & Social Services

$1,000 goes to Government & Law Enforcement

$750 goes to Housing & Community Development

$750 goes to Environment, Energy & Science

$500 goes to Agriculture, Commerce and Transportation

$250 goes to International Relations

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The annual federal tax gap in the United States is $400 billion. That means Americans, collectively, pay $400 billion less to the IRS than they should every year. To close this gap, an accounting professor and a law professor recently suggested that the IRS begin shaming people who avoid paying taxes by publishing and publicizing their names – similar to the strategies used by some law enforcement officials that publish the names of “Johns” arrested for soliciting sex.

Enforcement through shaming could attack all forms of tax abuse. These include high-income and corporate taxpayers who take artificial losses to offset taxable gains, as well as smaller-scale abuses such as the widespread practice of individuals illegally claiming home office deductions.

Continue reading the post here.

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The most innovative tax-filing nudge is California’s Ready Return, a free, voluntary service that allows people to download a pre-filled tax return using information from their W-2s and previous year’s filing. Ready Return began as a small pilot program three years ago, but was halted because of business lobbying pressure. Now, Ready Return is back. Unfortunately, thanks to paltry publicity, few Californians, let alone other Americans, know about it. In the interest of tax filing headaches everywhere, we hope that this will soon change.

Continue reading the post here.

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Coercive power is government’s most frightening weapon (one that libertarian paternalists fear as much as libertarians), and the conventional wisdom inside and outside of academia says that bureaucracies that use this power to implement and enforce a given regulation will be more successful than those that do not.

Ironically, when looking at the data, there are a number of cases where coercion is not necessary for a successful policy (though no universal rules about when these cases occur).

Continue reading the post here.

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