How to Hate Taxes a Little Bit Less

How to Hate Taxes a Little Bit Less (Ep. 400) - Freakonomics Freakonomics

"People will give money to government voluntarily if they support what the government is doing... what we found, to our shock and astonishment, was that people would give almost as much to a government organization as they would to a private organization. Allowing people to earmark is really successful at getting people to give more...

Imagine you’re old and frail; you don’t have much time left; and imagine the estate tax is about to be lowered. Here’s what Slemrod and his co-author Wojciech Kopczuk found, in a study they called “Dying to Save Taxes.” “For individuals dying within two weeks of a tax reform,” they write, “a $10,000 potential tax saving increases the probability of dying in the lower-tax regime by 1.6%.” In other words, the dying person hangs on just long enough to die under the new estate-tax rate. Or, if you are a suspicious type, you might imagine the dying person’s family tries to prolong their life in order to pay less tax, or maybe even fakes some paperwork after the fact. In any case, that’s how much effort can go into avoiding taxes...

SLEMROD: The best estimate we have is that for federal taxes, about 16 percent of what should be remitted is not...
They wanted to have a tax on real estate that was higher the more grand your residence. But it wasn’t easy to get a sense of the value of a residence. So what could you easily observe that would be an indicator of how fabulous your residence was? Well, first they tried fireplaces. The problem is that you have to have somebody go inside. What is correlated with the grandness of your home for which you don’t have to go inside? Windows. So for centuries there was a tax based on how many windows a house in England had... There was some extra business because as always, when there is a tax the creative juices of avoidance and evasion get rolling.

So what you can still observe to this day in England is how older houses, where it’s clear there was once a window and then it was bricked up to reduce window tax. We also know there were cases where windows would be installed that would allow light to come into two different rooms, so the glaziers had some business there...

In at least one country that had a bachelor tax, there was an exception that if you could prove that you had asked a woman to marry you and she had refused, then you were exempt from the tax. So a market arose for what were called professional lady rejectors, who, for a fee, would fill out the form saying yes, you had asked them for their hand in marriage and they had refused. And you would take this to the tax office and be exempt from the bachelor tax...

But is there a concern that participatory budgeting would radically realign the actual federal budget? Based on the evidence from her research, Lamberton doesn’t see that happening.

LAMBERTON: So in the aggregate what ends up happening, in the U.S. at least, is the defense budget, which is a huge, huge portion of the pie, goes down — and I will say that’s in part because our participants tended to be slightly more liberal than the population as a whole. But a lot of the other budgetary categories don’t change an enormous amount. So while on an individual level you might see big change, in the aggregate it actually isn’t a seismic shock that would be that different from what you would see when an administration changes...

KOLL: The Japanese economy ultimately is very much a two-tiered economy, in the sense that you’ve got the economic concentration in the megacities — Tokyo, Osaka, and Nagoya. Those three centers effectively account for about three-quarters of Japan’s employment and value-add creation. So the hinterland, the rest of the country, effectively is always in deficit, and that — if you look at the Japanese national budget — is also reflected in a very big redistribution effort. If the budget in Japan is about 80 trillion, you find that almost 20 trillion go to redistributing funds from the rich urban centers into the regions of the economy...

What’s happening in Japan — the imbalance between cities and “the hinterland” — is not so different from what’s happening in many countries, including the U.S., as the world gets more urbanized. But in Japan, it is extreme. Ninety-four percent of the Japanese population lives in urban areas. In the U.S., that number is just over 80 percent. The trend in Japan, as elsewhere, is that young people who grow up in rural areas eventually move to the big city, which leaves their hometown with an aging population and a depleted tax base.

To fight this problem, Japan introduced in 2008 what’s called a hometown tax system, or furusato nozei. It allowed people to make donations to their hometowns — which, after the first 2,000 yen or roughly $20, can then be deducted from their personal taxes. But here’s the thing: the donation, despite the name, didn’t actually have to be to your own hometown; you could direct the money to any region. Nor did you even have to be from a rural area to take advantage of the hometown tax. And — here’s maybe the most Japanese thing about the hometown tax — when you made a donation to a particular region, they would send you something nice in return."