Shaming Tax Delinquents; A Rotating File of Scofflaws
By Elaine S. Povich, Stateline
Almost two-thirds of the states are punishing tax delinquents with a digital version of the Colonial practice of locking lawbreakers in stocks set up in the village square.
It turns out publishing the names of tax scofflaws and the amounts they owe on the Internet works spectacularly well, bringing in millions to states eager for the revenue. In many cases, just the threat of being on the list is enough to get delinquent taxpayers to pay.
The technique is the flip side of tax amnesty, in which delinquent taxpayers are offered the chance to come forward voluntarily to escape high interest or penalties. The two processes are similar, however, in that states usually work out a payment plan for taxpayers.
The states that use public lists of delinquent taxpayers range from largely liberal ones such as California and New York to more conservative states such as South Dakota and Alabama.
In Vermont, the latest state to adopt the strategy, the legislature last year approved publishing the names of the top 100 individual and top 100 business tax delinquents. The state estimated it would collect $800,000 of an estimated $175 million in delinquent taxes in fiscal year 2015, which will end June 30.
The program has been even more successful than expected: Since the list was posted in January, Vermont has collected $1.3 million, according to Gregg Mousley, deputy tax commissioner. He predicted a total take of $1.5 million by the end of the fiscal year.
Under its plan, Vermont compiles the two lists, and then notifies the scofflaws by letter that their names are about to be published. According to Mousley, the letter often is incentive enough to prompt payment.
"At least half of the $1.3 million was collected before we put them on the list," he said. "The threat of being on the list was a very good motivator." Mousley predicted, however, that the pace of collections will slow and that the state will collect less in subsequent years because some of the buzz about the program will die down.
Mousley noted a quirk that also has been documented by researchers — the more money tax scofflaws owe, the less likely they are to be shamed into paying.
"When you are talking about large debts, you do tend to get some people who just don’t care," he said. "It's just not worth playing off their $450,000 or $1.2 million debt. Down on the lower levels, you get more of the Average Joe who is concerned."
The effectiveness of the shaming tactic has exceeded expectations in other states, too.
Wisconsin officials estimated that publicly naming delinquents would allow them to recoup about $1.5 million annually when they first posted the information in January 2006. Instead, they’ve recovered between $11 million and $31 million annually, according to Stephanie Marquis, communications director at the Department of Revenue. Wisconsin collected $12 million in fiscal 2014 and has garnered $10.8 million so far in fiscal 2015, she said.
The Price of Shame
In their groundbreaking paper “Shaming Tax Delinquents: Theory and Evidence from a Field Experiment in the United States,” researchers Ugo Troiano and Ricardo Perez-Truglia found that the “optimal policy” for collecting tax debts was shaming. But the price of the shame varied among taxpayers, according to Troiano.
"First, the price of the shame is not fixed," he said in an interview. "If I am on the list for $200, it’s relatively easy to get off the list and not be shamed. But if the price is $10,000, it costs more to get off the list and it's harder.
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