Death and taxes are said to be the only certain things in
life. You might add to that list arguments about taxes.
U-M Ross Professor Joel Slemrod works to get past those
arguments and find out what really works. Slemrod, the Paul
W. McCracken Collegiate Professor of Business Economics
and Public Policy, is one of the country’s leading researchers on the
subject and has written several books. His work can help lawmakers craft
better tax policy and provide insight into effective ways to curb tax cheating.
A: We’re focusing on the capital gains tax and
looking at Google searches, Wikipedia searches,
traffic on the IRS web site, and calls to the IRS.
We’d like to know if people are researching
the tax implications of buying and selling
stock before or after they make the
transaction. Ideally, you’d like to see a
spike in searches about the capital gains
tax before a spike in stock transactions.
Unfortunately, we see the opposite most
of the time — the stock volume precedes
the capital gains tax searches. We
do see some other interesting
patterns. The search volume
spikes during certain times of
the year — the filing deadline
and the end of the year, where
people make decisions on
capital gains and losses.
The other project is a look
into the impact of an IRS
enforcement policy that
started in 2011. Credit card
companies now send a
report to the IRS on every
merchant’s credit card
transactions, the idea being
that the IRS can compare it to what the merchant reported. The IRS suspected
a high rate of non-compliance with small businesses.
It’s still early, so we don’t have conclusions yet, but the
new policy might have some unintended consequences.
Suppose you are a restaurant. You can offer a discount
to customers who pay cash and lower the volume of
trackable credit card transactions. So we’re trying
to gauge the true impact of that enforcement rule.
Why is this interesting to you?
A: I’ve always been interested in taxation and behavior
because it affects just about every economic decision
you make. If you are going to buy a house, make a
charitable contribution, buy or sell stock, or quit
smoking, taxes touch all of that. It also touches on
honesty. I’m fascinated by tax evasion – who is tempted
to cheat and what keeps them from cheating.
What are the practical
implications for industry?
A: The main one is that the people who make tax policy
should think about the likely consequences of what
they’re doing before they do it. That’s some of the
insight we’re trying to provide. When a policy is being
considered, you hear a lot of arguments both for and
against. But once it’s been decided, there’s not enough
of looking back and finding out if it actually worked.