Would You Cheat on Your Taxes?

Last week, I cited IRS data and noted that tax evasion has likely added somewhere between $3 trillion and $5 trillion to the national debt over the last decade -- more than the Bush tax cuts, the wars in Iraq and Afghanistan, and the Obama stimulus combined.

"It's amazing more people aren't outraged about this stuff," I wrote. "Rather, they likely would be if they knew about it."

Not so fast, one reader warned. "What [percentage] of people evade taxes? Any estimates? I wouldn't be surprised if it isn't over 50%. It's hard for someone to get outraged about something they do themselves," the reader wrote.

We'll probably never know exactly what percentage of tax filers cheat. When the IRS estimates (PDF file, Adobe Acrobat required) the "tax gap" -- the amount of taxes that should be paid, but aren't -- it notes that the voluntary compliance rate is around 83%, meaning 17% of taxes owed are illegally evaded.

But that doesn't tell us what percentage of tax filers are actually cheating -- just the dollar amount of taxes underpaid. The IRS Oversight Board does, however, run a poll every so often asking taxpayers how they feel about tax evasion. Here's what people said last year:

Source: IRS Oversight Board.

It might be hard to take these results seriously. If asked by someone representing the IRS whether it was OK to stiff the IRS, most people can harness the power of second-order thinking and realize that the correct answer is "no," regardless of whether that's how they actually feel.

So let's take an informal (and totally anonymous) poll. Do you feel it's OK to cheat on your income taxes? Weigh in below, and share a thought or two in the comments section if you so desire.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 02, 2012, at 11:49 AM, DJDynamicNC wrote:

    I'm not sure that's the best question to ask.

    Since the poll is anonymous, we should get better results, but the real question to ask is not whether people think it's ok to cheat on their taxes - it's whether or not people HAVE cheated on their income taxes, and how much (you can use the same answers).

    This would give better results, I believe. Allow me to illustrate. Ask yourself: do you believe it is ok to drink and drive? Of course it isn't! Now ask yourself if you've ever driven after having a few beers. Many of us probably have.

    People do things that they don't think are "ok" all the time. They rationalize it, or forgive themselves, or apologize later, but they still do it - and they still don't think it's ok.

    Asking about behaviour will give better results than asking about beliefs, especially since what you're really trying to discover is behaviour anyway.

  • Report this Comment On February 02, 2012, at 2:21 PM, uberguy wrote:

    It's my contention that there is a certain amount of tax prep services out there are fraudulent. And then of course taxpayers simply not reporting income. I empathize with those that are disgusted with the amount of taxes we pay, and I am more tea party/libertarian than most, but my charge to you is, if you don't like it, leave!! I have no issue with you using all the tax incentives that are out there, and only paying the minimum required.

  • Report this Comment On February 02, 2012, at 3:37 PM, DJDynamicNC wrote:

    ^^^ Uberguy, I'm about as far from a Teapartier as it gets, but I agree 100% with your comments.

  • Report this Comment On February 02, 2012, at 4:44 PM, TMFDiogenes wrote:

    Good point, "is it ok to..." is a distinct question from "have you ever..." I wonder if there is a disparity in responses between the two questions.

  • Report this Comment On February 02, 2012, at 4:49 PM, futbolgenius wrote:

    Do I feel it's OK to cheat on my income taxes? No, but I would use every loophole available to me. Unapologetically as well. As the famous philosopher Eminem once said, "If you know the rules to the game, play." RATIONALIZATION ALERT: why give more money to Uncle Sam when they've been proven incompetent day after filibustered day?

    Just joking about the philosopher part.

  • Report this Comment On February 02, 2012, at 5:18 PM, JohnMaxfield37 wrote:

    Regarding TMFDiogenes's point...

    To quote Donald Rumsfeld, "there are known unknowns, and unknown unknowns."

    For most people who itemize or don't prepare their own taxes, the question of whether they've ever cheated is most likely an unknown unknown.

    As a result, many people would have to answer "I don't know..." in response to "have you ever..."

    Of course, if the IRS asked, then it'd probably be wiser to answer: "most certainly not!"

  • Report this Comment On February 02, 2012, at 5:35 PM, agwisreal wrote:

    There are things that strictly speaking come under the category of cheating on your taxes, but it's just too much trouble to comply.

    I found a dime on the sidewalk yesterday. Two weeks ago, I found fifteen cents on a park bench. That can add up to dollars per year. But who would keep the records and then declare it?

    Material cheating, that is, cheating that is done for the money and not to avoid the fuss and bother of compliance when utterly trivial sums are at issue, is both wrong and ill advised. The money you 'save' just isn't worth the risk.

  • Report this Comment On February 02, 2012, at 5:42 PM, xetn wrote:

    This article is based on the stupid idea that theft is ok as long as it is the government that is doing it. How dare anyone try to keep what they have earned. The very idea! But theft is theft and by every known law, is not only illegal, but imoral.

    But governments decides that it needs your wealth for it to exist and declares that it can take what it decides and makes it a law and backs it up with guns.

    The really funny thing is although if someone takes your money while pointing a gun at you, you are enraged by the crime. But it is somehow ok if it is your government.

  • Report this Comment On February 02, 2012, at 5:46 PM, xetn wrote:
  • Report this Comment On February 02, 2012, at 5:58 PM, drborst wrote:

    I like the comments: And I'll add this:

    I cheated on my taxes a few years ago (hopefully there is a statute of limitations). I won't go into details except to say I submitted a correct 1040, but the IRS sent me a larger than expected refund that included taxes I withheld for a Nanny.

    I went as far as taking a day off work to argue with the IRS about why I owed them money. In the end, I came away a little but richer than I should be and utterly convinced that we need to simplify the tax code.

    drborst

  • Report this Comment On February 02, 2012, at 6:34 PM, dennyinusa wrote:

    xetn

    Do you believe in public education, police dept, ambulance service, fire dept, roads, bridges, national defense, meat inspection, etc.?

    How do you think these items our paid for?

    You do understand that the federal government and /or the state represent us, we the people.

    People who cheat on taxes are basically stealing your money.

    Taxes are not evil.

    Many conservatives are at the government trough also. Remember we spend more on defense than the next 10 nations combine. Oink---Oink

  • Report this Comment On February 02, 2012, at 7:07 PM, Synchronism wrote:

    @ dannyinusa

    Your statements apply only if the government makes good use of those taxes.

    In the USA, I would gladly hand over my taxes to the government. No cheating at all.

    In my home country, on the other hand, I will turn a blind eye, if not ENCOURAGE, tax evasion. Why, you might wonder? Tell me, how would you feel if, on a hypothetical scenario, of every tax dollar you spend, 60 cents goes to paying off the national debt, 30 cents lines the pockets of the President, the Congressmen, and the Senators, and a measly 10 cents goes to "public education, police dept, ambulance service, fire dept, roads, bridges, national defense, meat inspection, etc."?

  • Report this Comment On February 02, 2012, at 8:18 PM, bornboring wrote:

    Just wondering:

    percentage of filers who failed to take all allowable deductions, and therefore overpaid their taxes. IRS may catch some of these but probably not all.

    Though these are probably people not rich enough to have good consultants, the number is probably much bigger than those who under-report, so what would be the $ value be?

  • Report this Comment On February 03, 2012, at 7:24 AM, nazaaha wrote:

    I pay all of the taxes that I know about. I don't live in the US, and I'm an immigrant, so I'm sure I've missed something, but I certainly try to pay every cent.

    I wonder then, how much of the 17% that is not paid is honestly not paid? It might be very possible to file something that wasn't correct but that was, to the best of the filer's knowledge, but still ended up to the filer's benefit.

  • Report this Comment On February 03, 2012, at 7:40 AM, stlmikey wrote:

    Simplification is the key. I would hope most people try to calculate their taxes correctly. But because there are so many deductions, credits and rules, I'd be surprised if 25% have a correct calculation.

    I would get rid of all deductions, lower tax rates commensurately and have a few credits for education, retirement and medical that are easy to calculate. It would me happier to pay taxes.

  • Report this Comment On February 03, 2012, at 8:22 AM, rdwicker wrote:

    stlmikey has it nailed. we have to peel away all the layers of nonsense that allow us to "cheat" our taxes. as a small business owner, i know that without the help of our accountant, there would be WAY too many "deductions" we would miss. the system is far too complicated. Keep It Simple Stupid.

  • Report this Comment On February 03, 2012, at 8:56 AM, tinjim wrote:

    The problem with the tax code, is that no one I know has read it from cover to cover. Unlike the driving code, it is unlikely that everyone has complete understanding of what they are supposed to pay, and what they are allowed to deduct. If you don't know the rules, you can't win!

  • Report this Comment On February 03, 2012, at 9:07 AM, TMFGortok wrote:

    If you've ever not declared Internet purchases on your taxes -- that's 'cheating' (in the great commonwealth of Virginia). How many people shop at Amazon? How many people actually file those purchases with their tax return?

  • Report this Comment On February 03, 2012, at 1:05 PM, woodNfish wrote:

    The IRS assumes that 17% of the legally owed taxes are illegally evaded, but I am willing to bet that a large part of that percentage is honest error caused by a ridiculously complex tax code that even the crooks at the IRS don't understand.

    >>On February 02, 2012, at 7:07 PM, Synchronism wrote:

    Synchronism, your assumption that the US federal govt is honest and dooesn't waste the money it steals from its citizens at gunpoint is misplaced. The US federal govt is the definition of corruption. It is rotten through and through.

    >>On February 02, 2012, at 6:34 PM, dennyinusa wrote:

    Dennyinusa, most of your lst are state functions that the feds have no business being involved in, and many of them are local, such as garbage collection, which even the state has no business in.

    If we want to regain control of the US govt. we have to take away its ability to steal our private wealth.

  • Report this Comment On February 23, 2012, at 9:29 AM, thidmark wrote:

    Does this include golf course wagers, office pools, Saturday night poker games? I doubt much of that gets reported.

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