"Paying Taxes Can Make Citizens Happy"

Colleagues find that paying taxes can make people happy:

Paying taxes, according to the brain, can bring satisfaction, EurekAlert: Want to light up the pleasure center in your brain? Just pay your taxes, and then give a little extra voluntarily to your local food bank. University of Oregon scientists have found that doing those deeds can give you the same sort of satisfaction you derive from feeding your own hunger pangs.

A three-member team – a cognitive psychologist and two economists – published its results in the June 15 issue of the journal Science. The scientists gave 19 women participants $100 and then scanned their brains with functional magnetic resonance imaging (fMRI) as they watched their money go to the food bank through mandatory taxation, and as they made choices about whether to give more money voluntarily or keep it for themselves.

The participants lay on their backs in the fMRI scanner for an hour-long session and viewed the financial transfers on a computer screen. The scanner used a super-cooled magnet, carefully tuned radio waves and powerful computers to calculate what parts of the brain were active as subjects saw their money go to the food bank and made yes or no decisions on additional giving.

Researchers found that two evolutionarily ancient regions deep in the brain – the caudate nucleus and the nucleus accumbens – fired when subjects saw the charity get the money. The activation was even larger when people gave the money voluntarily, instead of just paying it as taxes. These brain regions are the same ones that fire when basic needs such as food and pleasures (sweets or social contact) are satisfied.

“The surprising element for us was that in a situation in which your money is simply given to others – where you do not have a free choice – you still get reward-center activity,” said Ulrich Mayr, a professor of psychology. “I don’t think that most economists would have suspected that. It reinforces the idea that there is true altruism – where it’s all about how well the common good is doing. I’ve heard people claim that they don’t mind paying taxes, if it’s for a good cause – and here we showed that you can actually see this going on inside the brain, and even measure it.

The study gives economists a novel look inside the brain during taxation, said co-author William T. Harbaugh, a UO professor of economics and member of the National Bureau of Economic Research in Cambridge, Mass. “To economists, the surprising thing about this paper is that we actually see people getting rewards as they give up money,” he said. “Neural firing in this fundamental, primitive part of the brain is larger when your money goes to a non-profit charity to help other people.” “On top of that,” Harbaugh added, “people experience more brain activation when they give voluntarily – even though everything here is anonymous. That’s a very surprising result – and, to me, an optimistic one.”

However, this latter finding, which offers confirmation to the economic theory of “warm-glow” giving, doesn’t necessarily mean that taxes should be lowered and charity relied on more heavily, Harbaugh said. In a voluntary environment, he added, lots of people free-ride and donations fall.

The study, Mayr said, reflects the balancing act that every society must face. “What this shows to someone who designs tax policy is that taxes aren’t all bad,” he said. “Paying taxes can make citizens happy. People are, to varying degrees, pure altruists. On top of that they like that warm glow they get from charitable giving. Until now we couldn’t trace that in the brain.”

Neural activation from mandatory taxation, the researchers said, helps predict who will give. “We could call the people whose brains light up more when money goes to charity than to themselves altruists,” Mayr said. “The others are egoists. Based on what we saw in the experiments, we can use this classification to predict how much people are willing to give when the choice is theirs.”

There remain a lot of unanswered questions, Harbaugh said. “We show that people liked paying a tax that went to a food bank. But suppose the tax had been unfair. What then" Or suppose that people voted to make other people pay the tax, too" That would help other people even more, so would the voter get a bigger neural reward"”

Harbaugh, Mayr and co-author Dan Burghart, an economics graduate student, say they are not worried about the possibility that governments could use their method to monitor tax evasion, or charities could use it to figure out whom to ask for money. “To do this, we needed a $3 million scanner, some liquid helium and a few weeks of computer time,” Harbaugh said.

“If a participant moved her head,” Burghart added, “we had to start all over. It will be a while before this is built into cell phones.”

Comments

[Robert]

I might be happy if most of my tax money went to food banks, too. Most taxation, though, reflects interests in government...and only some of those interests are focused on giving money to the needy.

[Carolyn Kay]

This research shows that the tendency toward altruism is built in, along with our tendency toward selfishness. So we're born with a built-in conflict. How we resolve that conflict is a measure of our maturity as individuals and as societies.

Unfortunately, even progressives have bought in to the greed is good mantra, which tries to paint altruistic tendencies as evidence of insanity--or evil.

I'd write a book about it, if I could ever find a publisher.

Carolyn Kay
MakeThemAccountable.com

[realpc]

Of course we are naturally altruistic, we don't need brain scans to show that people like to give.

But these researchers obviously set out to support their socialist agenda. Paying taxes makes you happy? The subjects weren't actually paying taxes, they weren't paying money they had worked for. Most of us pay thousands of hard-earned dollars every year, and it does not make any of us happy. Just one more example of dopey academic pseudo-research.

All of us -- or almost all -- love to help others. Espcially when it seems to be appreciated, and as long as it doesn't leave us financially, physically, or emotionally exhausted. No pseudo-scientific experiments are needed to prove this.

But we don't enjoy paying taxes. We don't mind, as long as the rates are reasonable. We accept taxes along with all the other unpleasant but unavoidable aspects of life.

In this so-called experiment the money wasn't earned, it wasn't a large amount, and it all went to help people in need. These "researchers" are misusing science to promote their political bias. Raising taxes will make people happy -- the higher your tax bracket the more hilariously happy you become.

Total BS.

[Mark Thoma]

realpc:

I think if you read the research summary again, you'll see that most of those exceptions are covered and acknowledged either explicitly or implicitly.

I should have talked more about the research perhaps, but one angle is on the motive for altruism. There are different theories for why people give - one is warm glow - and this helps to support that view (people are anonymous yet their pleasure centers still light up - this means that they aren't giving the money so that other people will think highly of them, for future reciprocity, etc.). But there's more to the research than that including the difference in the relative intensities of activity in particular regions of the brain from voluntary and involuntary payments.

[dd]

19 women, hmmm. Now try it on 19 college-aged men.

[evagrius]

"19 women, hmmm. Now try it on 19 college-aged men."

Try it on 19 college-aged "white"( WASP) men, other European descent men, then on black men, Hispanic men, Asian, ( Chinese, Japanese, Pacific Islander) men, Native American men.

Do the same for the women.

[Robert-the other robert it seems. We need more Bobs]

Ah well. According to my late-in-life formed Christian values, giving is an outword manifestation of an inward transformation. Sadly, we need the government to fill in because so many "Christians" buy into the myth of the deserving and undeserving poor and like to drive around in their BMWs (well, I must admit that there is nary a BMW or Lexus to be found in my current church's parking lot). Even more sadly, I get less pleasure from the giving than from a 2 lb bag of M&Ms. Or Scotch, my sin of the evening.

[Robert-the other robert it seems. We need more Bobs]

Given that members of my extended family were raised with the assistance of WIC and food stamps, I should share a dream of mine. Rather than having a bureaucracy that tries to sort out who should get free food and who should not, we should have a catalog of basic food stuffs that are free to everybody. Basic things like peanut butter, bread, powdered milk, cheese, beans, some inexpensive but easy to prepare composite meals, fiber supplement, multivitamin, nothing with sugar in it, eggs, maybe certain veggies.

There are two categories of people in this country: those who pay taxes and those who do not. We can justify the expense based on the idea that the taxpayers have "paid" for their basic food allotment and the rest of the folk need it.

[Nate]

Mark,

I paid about $30,000 in federal/state taxes last year. Why don't you demonstrate the pleasures of paying taxes by cutting me a check for said amount. It must be true that if one enjoys paying taxes (presumably their own), then they must enjoy footing the bill of a fellow wage-earner. You are a gentleman and a scholar.

By the way, you are invited to my pool party. Just remember to wire the money first.

Nate

[Rodrigo Ordonez]

Firmly tongue in cheek I daresay that there is certainly a great deal of pleasure in contemplating forgone consumption.

[ndd]

The following is from The Economic Journal, Volume 117 Issue 520 Page 761Issue 520 - 781 - April 2007, by way of the behavioral economics blog, "Natural Rationality", http://naturalrationality.blogspot.com/index.html :

"We test if altruism is paternalistic with respect to health. Subjects can donate money or nicotine patches to a smoking diabetes patient whose willingness to pay for nicotine patches is positive but below the market price. In a between-subjects treatment, average donations are 40% greater in the nicotine patches group. When subjects can donate both nicotine patches and money more than 90% of the donations are given in kind rather than cash. These results are also confirmed in three additional stability experiments that vary the framing, use food stamps instead of money, and use exercise instead of nicotine patches."

This appears to have been a traditional psychology experiment, rather than a brain-scan, but the results are consistent with the study reported above and some of the criticisms. Paying taxes probably doesn't induce pleasure, but perhaps had there been a specific check-off for allocating $10 in taxes to Hurricane Katrina relief, that might have done so.

[reason]

A lot of people don't seem to have internalised the James Kroeger thesis - paying taxes is a lot different than voluntary giving because other people do it to. That means:
1. You are not giving up relative purchasing power (for housing in particular)
2. Together you can acchieve much more than you can individually
3. A political process decides what to do with the money.

Point 3 tends to mean the quality of the political process is the key to support for taxation. A corrolary is that maybe the problem people have with paying taxes in the US is to do with their alienation from the political process there.

[--Andrew]

Seems that Tanzanian tax collector's are trying to use the same feeling to their advantage in collecting more taxes for development, primarily from unregistered merchants. However, their twist is to have the local business associations and marketplaces do it for them. The local organization then spends some of the collections on improving things locally so the taxpayers see the direct results before forwarding the rest.

http://news.bbc.co.uk/2/hi/business/6749373.stm

Tanzania's traders learn to love taxes
By Daniel Dickinson
BBC News, Mtwara, Tanzania

A strange thing is happening in Mtwara, a sleepy town built on the cashew nut industry on the southern coast of Tanzania.

Small market traders are getting motivated by, some would say excited about, paying taxes.

It is a trend which if it were to continue across the country could drastically boost the development of one of Africa's poorest countries.

In Mtwara's covered central market, 40 kilogramme bags are stacked almost to the ceiling.

Potential buyers inspect open bags of a kaleidoscope of beans, picking them up and letting them drain through their fingers as though to test their quality.

Tax enthusiast

Shaibu Ng'ombo breaks all the stereotypes with his enthusiasm for paying taxes.

He runs a successful small wholesale business, transporting beans, cereals and rice from across Tanzania to sell to shops and individuals in Mtwara and the surrounding region.

Each day he pays just less than half a US dollar (24 pence) in tax to the municipal authorities for his plot, for the market to be cleaned and for security services.

He thinks it is a good deal.

"I am happy to pay this money as it makes it easier to carry out my business, but it has also made me think about tax," he says.

"'Paying taxes is an important thing because it helps in the development of our country. Every citizen is responsible for this as it has a direct link with our development.

"The people who don't pay need to be educated. They need to understand that roads, education, and health services all depend on the taxes we pay. If they understand, they will pay."

Working system

It is a textbook answer which sees the big picture, an answer likely to bring a smile to even the most hard-bitten tax collector.

The difference in Mtwara is that it is not the local tax officials who are collecting the money, but an association of traders, called Wabisoco, that Shaibu Ng'ombo belongs to.

Some 400 traders pay the tax directly to Wabisoco. They include fruit and vegetable sellers, clothes retailers and bicycle repair shops, which, depending on the size of the business, pay as little as 20 US cents a day.

In an average month about $1,200 (£600) is collected. Wabisoco pays for the market services and its own running costs and then hands about two-thirds of that to the local council.

"It's a system that works well," says Wabisoco's Novartus Kaijage. "Normally, you find that businessmen and tax collectors have an antagonistic relationship. Having an organisation between the council, which needs the taxes, and the business, which needs a service, makes it easier to collect the tax."

Spreading the net

Local and national tax collection in Tanzania are carried out separately, by the local district council and the government respectively, but local successes like the Mtwara traders are being reflected in national collections.

The Tanzania Revenue Authority (TRA) has increased tax collection by four times over the last decade thanks to the reform of the tax system and a more user-friendly approach.

Tax reform is seen as a key element of the development of this poor country, one which the government that was elected in 2005 has been prioritising.

More money means more investment in health, education and infrastructure.

The rate of tax collection is about 14.5% of gross domestic product, or GDP - below both the African average of 17% and the psychologically important level of 20%, the point at which Tanzania can begin to be able to sustain its own budget spending without the help of foreign donors.

Tax revenues have increased because big business is now paying up.

Attention is turning increasingly to the burgeoning informal sector, people who are operating outside the formal economy and laws of the country, mainly petty traders, farmers and small businesses.

Taxing or beneficial?

Tony Muganyizi, the TRA's director of research and policy planning, believes it is a massive undertaking.

"We need to increase the tax base and this we must do by bringing small traders, farmers and light industry into the formal economy," he says.

"This is a big challenge because they operate mainly in cash."

It is estimated that 70-80% of businesses in Tanzania are technically partly outside the law.

While the market traders in Mtwara are happy to pay a local tax, few are legally registered as businesses and as a result do not pay an array of other taxes, including business licences, income tax and VAT.

The government has launched a programme called Mkurabita to encourage more people to engage legally with the formal economy and enjoy the benefits, for example access to loans and the securing of land ownership, that working in the formal economy can bring.

Formalisation

Mark Waite, an advisor on formalisation employed by a Norwegian NGO, says there are many reasons why people might want to stay informal.

"It's difficult to pay taxes and in the past there have been too many of them," he says.

"It takes a lot of time and money to register and license a business.

"And after going through all the hassle of becoming formal, there seem to be few tangible benefits."

In Mtwara and across Tanzania, the informal sector continues to thrive, while the government looks on and no doubt tries to calculate the tax revenues it is losing.

The government is hoping that formalisation will catch on, that revenues will increase and that it can then spend more money on developing the country by boosting growth and reducing poverty.

[James Kroeger]

...the difference in the relative intensities of activity in particular regions of the brain from voluntary and involuntary payments.

It may be true that most rich people are very upset about being required to taxes, but the only reason they are upset is because they are not aware of all the facts re: the impact of taxation on their livelihoods. If they understood the Big Picture of taxation, they would surely embrace with enthusiasm the idea of having their income taxed at more steeply progressive rates.

The single biggest reason why rich Republicans object to being taxed at high rates is because they believe it imposes a huge sacrifice on them in terms of lost purchasing power. They are wrong. When all rich people are deprived of disposable income in a way that preserves each household's 'ranking' within the hierarchy of all income earners, none of them actually loses any purchasing power. Prices would be forced down by the marketplace to levels that now-poorer [nominally] rich people would be able to afford. Smaller disposable incomes would buy them just as much a higher pre-tax incomes would have been able to purchase them if they had not been taxed at all. An in-depth explanation of why this is true can be found here.

If rich people understood this aspect of how the marketplace functions, they would have no logical reason to object to paying steeply progressive income taxes. In simple cost-benefit terms, they'd give up nothing in terms of lost purchasing power and they'd be able to enjoy the benefits of improvements in infrastructure and the production of more real wealth through the elimination of unemployment. If rich people really understood the economics of taxation, their current 'involuntary' feelings would evolve into 'voluntary' feelings.

It is true that current government practices do not provide major tax contributors with a feeling of 'ownership' in the wealth-producing activities of government. One would think that intelligent professionals would be able to innovate some new practices that would provide that feeling of ownership. Perhaps taxpayers could be charged a premium above and beyond their basic tax obligations for the opportunity to obtain 'shares' of the cost of certain federal projects and perhaps also for the right to dedicate all or most of their tax contributions to specific government projects. Unlike shares of ownership that are purchased in stock markets, share-of-contribution documents would establish in a publicly observable way the magnitude of the contribution of individual taxpayers.

Those who pay the premium would be able to keep their personal tax dollar contributions from being 'lost' in the pool of general tax revenue. Individual taxpayers would be able to identify themselves with certain government projects, helping to define their personal 'brands.' In other words, the government would essentially be selling sponsorship opportunities. Such practices might complicate things, but perhaps they would be worth the cost of implementation if rich people end up feeling better about the contributions they make to the public treasury. But even without this incentive, there are still compelling reasons why rich people ought to enthusiastically embrace the option of public taxation over private giving.

As things stand now, rich Americans who act on their generous instincts make a real sacrifice when they choose to give to charities or civic causes. Why? Because those rich people who choose not to give---or who give less---end up improving their purchasing power in real terms---relative to their more generous peers---for no reason other than because they chose not to be generous (or as generous). When you give money privately to others, it reduces the size of your disposable income relative to the disposable incomes of all rich people who did not give as generously as you.

Individual acts of charity can re-order the hierarchy of disposable-income distribution in favor of non-givers. This means that individuals face a market-based incentive to ignore the needs of others because they stand to gain a real purchasing power reward if they do so and others do not. Rich people who believe that economically privileged citizens ought to help finance the Common Good should be especially annoyed by this state-of-affairs. It's not that they aren't willing to make a personal sacrifice if it's needed. They obviously are. It's just difficult to psychically tolerate the continued existence of perverse institutional incentives that reward indifference toward others when it is not necessary that we do so.

There are two options. One is to set up our tax code so that all rich people are required to be equally generous in contributing to the Common Good. If this option is pursued, no rich person ends up having to make any real material sacrifice. The other option is to continue to allow some rich people to contribute to the common good if that is their desire. This option forces those who are conscientious to pay a material penalty for having done The Right Thing. Forcing others to contribute---who might otherwise prefer to enrich themselves at your expense---may not sound like such a bad idea, when you think about it.

[Butch1966]

It is very easy to giveaway money that you do not earn, just ask your congressional representatives. I would like to see what happens if the study started taking money out of their bank accounts. That would be an interesting study!

No one likes paying taxes. That is simply absurd! It is a waste of valuable time, keeping track of receipts and filing forms.

www.fairtax.org

[Icarus]

I wish they would study the thrill of avoiding taxes. They could do it from my future home in the Caymans.

[manufacturer mechanical seal]

We are better off today than we were eight years ago