Home > Behavioral Finance > I’d rather die than pay taxes

I’d rather die than pay taxes

August 30, 2010

“Well, Mr. Big Brother I.R.S. man, let’s try something different, take my pound of flesh and sleep well,” wrote Andrew Joseph Stack III before flying his plane into an I.R.S. office building, killing an I.R.S. employee and himself.

Anger over taxation by a foreign government was the cry of the 1773 Boston Tea Party where American colonists, animated by anger, tossed into the Boston harbor a shipload of tea taxed by the British government. Still, we do not like taxes even when imposed by our own governments. “I drive to work,” wrote one taxpayer. “I paid tax on the car I drive, the gas it uses, and on the maintenance to keep it up. At work, I earn money. This money is taxed by the state and federal government…I go out for lunch and guess what, it’s taxed as well…Should I die, taxed again…”
My mechanic sent a postcard offering “Tax Break Specials,” saving me the cost of sale tax. He must know that his typical customers prefer small savings in the form of a tax break to more substantial savings in the form of a cash discount. We dislike taxes so much that we are willing to pay $5,000 to save $4,000 in taxes. Imagine that you earn an annual salary of $50,000 before taxes at an American company. Now you are offered a position at one of two European branches at a $75,000 salary. The good thing about Country A is that your daily commute will be 60 minutes shorter than in Country B. The bad thing about Country A is that food would cost you $5,000 more than in Country B. Which country would you choose? Now imagine identical circumstances except that the bad thing about Country A is that you would pay $4,000 more in taxes than in Country B. Which country would you choose? Abigail Sussman and Christopher Olivola presented the first of the two circumstances to one group of people and the second to another group. It turned out that more people in the United States and Britain chose country B when they could save $4,000 in taxes than when they could save $5,000 in taxes. Sussman and Olivola asked people in their survey for political affiliations, placing Democrats, Communists and Socialists in the pro-tax group, and Republicans and Libertarians into the anti-tax group. They found that aversion to taxes characterized the anti-tax group but not the pro-tax one. Indeed, Democrats, Communists and Socialists were willing to endure a longer commute to avoid higher food costs than to avoid higher taxes.

Further reading

  1. Brick, Michael (2010).  “Man Crashes Plane Into Texas I.R.S. Office.”  New York Times, 19 February.
  2. Comments to an article by Laura Sanders, “Rich Cling to Live to Beat Tax Many.” Wall Street Journal 30 December, 2009.
  3. Axe the Tax: Taxes are Disliked More than Equal Costs Abigail B. Sussman Princeton University Christopher Y. Olivola University College London Working paper 2010.
Advertisements
%d bloggers like this: