Wednesday, April 23, 2014

Blank on Collateral Compliance

Josh Blank has a new paper available on U.S. tax penalties, which is of broad interest given the increasing role of penalties in corralling a global diaspora into the US tax net. Abstract:
As most of us are aware, noncompliance with the tax law can lead to tax penalties, which almost always take the form of monetary sanctions. But noncompliance with the tax law can have other consequences as well. Collateral sanctions for tax noncompliance—which apply on top of traditional tax penalties to revoke or deny government-provided benefits—increasingly apply to individuals who have failed to obey the tax law. They range from denial of hunting permits to suspension of driver’s licenses to revocation of passports. Further, as the recent Supreme Court case Kawashima v. Holder demonstrates, some individuals who are subject to tax penalties for committing tax offenses involving “fraud or deceit” may even face deportation from the United States. 
When analyzing sanctions as incentives for tax compliance, tax scholars have focused almost exclusively on the design and implementation of monetary penalties. This Article, in contrast, introduces the collateral tax sanction as a new form of tax penalty that does not require noncompliant taxpayers to pay the government money and that does not require a taxing authority to implement it. Drawing on behavioral research and experiments in the tax context and other areas, I argue that collateral tax sanctions can promote voluntary tax compliance more effectively than the threat of additional monetary tax penalties, especially if governments increase public awareness of these sanctions. Governments should therefore embrace collateral tax sanctions as a means of tax enforcement, and taxing authorities should publicize them affirmatively. 
After considering the effects of collateral tax sanctions under the predominant theories of voluntary compliance, I propose principles that governments should consider when designing collateral tax sanctions. These principles suggest, for example, that initiatives to revoke driver’s licenses or professional licenses from individuals who fail to file tax returns or pay outstanding taxes would likely promote tax compliance. However, whether the sanction of deportation for tax offenses involving fraud or deceit will have positive compliance effects is far less certain. Finally, I suggest how taxing authorities should publicize these sanctions to foster voluntary compliance.
The paper includes an interesting, if brief, section entitled "Why do People Pay Taxes" that is of note.


  1. I have to say I am not impressed by this paper. The passport revocation issue is way way more complex than Blank seems to realize. Blank also seems to forget(or not realize) that Embassy and Consular services are paid for by user fees as is FDIC insurance(mostly). It would have been a better paper if he actually cited services paid for out of general revenues.

    Something I have realized for a long time is not matter how longingly the American progressive movement looks to Canada and its social safety net it is absolutely 100% opposed to taxes such as the GST/TPS and QST/TVQ. I remember a few years back when former Reagan(and at that time Republican) Treasury Tax policy official Bruce Bartlett in a video stated quite positively in his mind how every time an illegal alien in Toronto bought a bag of Doritos and paid GST/TPS they were in turn financing their own healthcare. Bartlett(who was Republican at the time but now a Democrat) was absolutely crucified by American progressive bloggers for being anti immigrant and xemophobic(It had something to do with the Doritos reference in addition to GST).

    As a final point Black seems to be inadvertently leading to the whole Government by user fee model Canada has gone down the road of but many Americans reject in favor of a more income tax/general fund driven system. I remember a few years back the CEO of Nav Canada(Canada's quasi private Air traffic control system) being asked by a Senate committee how the collected their ATC fees from aircraft owners to which the CEO stated they get the provincial sheriffs to impound any plane with prop/chauk locks that is seriously delinquent to which the assembled Senators accordingly praised.

  2. Not to get too off track but this recent presentation by Edward Kleinbard is pretty impressive coming from a high level American policy academic. This is the first time I have seen someone at this high of a level of influence go so far off the American tax policy reservation. Even Kleinbard now admits to being an apostate. It makes a lot of the same points I did in my previous post about the benefits of GST/TPS and QST/TVQ.