How do governments finance sustainable initiatives without raising taxes?

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[tweetmemedigg] If you assume we live in a perfectly rational world that has little systemic friction you’d be excused for thinking that the tax-take is efficient. It’s not. And because it’s not, there’s some simple communication techniques we can use to make it more efficient. It’s as simple as that.

Around the world communication ‘tweaks’ have been keeping everyone honest, and in some cases, saving everyone money. It’s no suprise – efficient tax forms cost both you and the government less. These efficiencies translate into an almost invisible way of financing sustainable initiatives. And painless money raising and sustainable initiatives are something we could do with right now.

Tax doesn’t have to be taxing (no, really…)

In Australia, tax-payers were informed that that normal social practice was honesty in tax returns. Sounds simple – stupid, even.

  • This reduced the average deduction claim from $286 to $151 (Wenzel, 2004)

Assuming an average tax rate of 30%, this would mean a revenue gain for the government of more than $800 million. (‘Heads you die’, pdf from an Australian think tank)

Minnesota nice

A tax experiment in Minnesota tried 4 types of intervention on the forms:
  1. Taxes go to good works
  2. Threatening the risk of punishment
  3. Instructions on how to get help if confused
  4. Simply told that 90% of people complied in full

The last one was the only one to work. (Minnesota tax nudge. Nudge, pg 72)

Viva España
(and California, Denmark, Australia, Belgium, Chile, Portugal, Spain, France, Netherlands… )

Spain has an automatic tax return called the ‘borrador’. It lists all the sources of income and interest payments that have been reported to the government and, if you agree, you sign off and file. It’s a brilliantly simple idea, which is no stranger to a whole host of other forward thinking governments including California, Denmark, Australia, Belgium, Chile, Portugal, Spain, France, and the Netherlands.

Californian’s ‘Ready Return’ – by nearly any metric – has been a giant success. In the pilot group:

  • median filing times fell by 80 percent
  • beneficiaries saved, on average, $30
  • 0.3% received an error notice compared with 3.1 percent of other filers
  • won a 98% satisfaction rate

Interestingly, the strongest opposition to Ready Return has come from businesses. Stanford Law professor Joseph Bankman says Intuit, the California company that sells the popular TurboTax software, spent more than $1 million lobbying Republican lawmakers against the plan.

With a few changes we have $800 million revenue gain in Australia, a 90% compliance rate and a 98%(!) satisfaction rate in the US. We’re talking about tax here remember – where did a satisfaction rate come from? Who’d’ve thought the answer was a simple communication tweak…

tax

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