It sounds like an outtake from the Lives of Others or another surveillance conspiracy theory: what if you mobilized an entire country to make sure businesses paid their taxes?

Slovakia is trying this with its year-old plan for a tax lottery. And it might be a stretch, but who knows whether the beleaguered IRS might consider one day following suit for America's corporate scofflaws? After all, there's no question the IRS needs help. Thanks to budget cuts, the agency is so short staffed that this year it will audit fewer Americans than at any time since the 1980s.

"We keep going after the people who look like the worst of the bad guys, but there are going to be some people that we should catch, either in terms of collecting the revenue from them or prosecuting them, that we're not going to catch," IRS Commissioner John Koshinen said earlier this month.

So let's turn our eyes to Slovakia.



In an attempt to get companies to pay their fair share of value-added tax (a type of sales tax) Slovakia has decided to recruit its masses to keep its businesses honest. It's like crowdsourcing for public revenue.



Here's how it works: Slovakia has asked its citizens to collect all their sales receipts for anything over one euro, whether at a store or a restaurant. Each receipt is printed with the business's company tax ID. Slovakian authorities want citizens to go home, look up the receipt with the tax ID, and enter it into a national database. The Slovakian finance ministry will look through the database to double-check that the businesses are correctly reporting their income – or so they say.



What's in it for citizens? As a reward for each sales receipt a taxpayer registers from a store or a restaurant, he or she will be registered into a monthly lottery and get a chance to win a car, €10,000 or to appear on the country's version of The Price is Right.

In this age of post-Occupy, when corporate tax breaks reliably get US citizens riled up, why wouldn't we try the Slovakian experiment here? After all, the country's finance minister touted the program as a "huge success".



Here's the thing: that may be true, but not for the reasons one would think.

Scaring merchants into compliance

Slovakia's goal is to unite its populace in a widespread respect for taxes – an ambition that may be out of reach for America, which is far more sprawling and harbors dedicated tax resisters.



If every man is the tax man, the thinking goes, citizens and businesses will behave better. The real purpose of the tax lottery is not to create a potential database of relevant receipts, but to increase tax compliance by changing the dynamic of government's relationship with taxpayers and business it regulates. By making businesses think that the government is recreating paper trails, which may lead to a potential audit, the tax lottery increases tax compliance just by existing. No actual analysis of receipts required.

A foggy train station in Slovakia, where Slovaks gather to talk about tax incentives and government mind games. Photograph: Robert Nemeti/Barcroft Media

But it's hard to pull this off. Tax auditing is a difficult and expensive process, whether in the US or Slovakia. A country that can't hire enough auditors to keep up with business taxes is also unlikely to pay enough people to sift through databases of tax IDs from registered receipts that live, crumpled, in the pockets of forgetful citizens.

"My guess is that if it works, it is through the mechanism of scaring merchants into collecting and remitting [tax payments], because they know government has more information – which is very different than tracking down whether tax was submitted on each of thousands of registered receipts," says Mitchell Kane, Gerald L Wallace professor of taxation at NYU's School of Law.

Making taxpayers feel like they are part of the process

Then there's that squishy issue of national unity. It always feels great to be a part of the team, a part of the process – especially when it comes to making important decisions involving money.

"We have research suggesting that involving people more in the tax process, for example by asking them for their opinion on where taxes should be spent, increases both their compliance with paying taxes, and their happiness when they actually do pay," says Michael Norton, an associate professor of business administration at Harvard Business School's Marketing Unit and co-author of Happy Money: The Science of Smarter Spending.

"So, it is possible that involving people through this interesting receipt plan may indeed increase their involvement with and satisfaction paying taxes."

Norton's research shows that allowing people to simply express in which areas they would like their taxes to be spent – without the collecting agency being required to actually obey their preference – increased their tax compliance by 16%.

Americans' love for the lottery may be premised on the country's long tradition of rewarding the lucky without regard to hard work or talent. Photograph: Carlo Allegri/Reuters

Such successes can be short-lived, however. The research notes that these effects might wear off as citizens become accustomed to the new form. It is also possible that allowing the taxpayers to express their opinions could lead them to expect rapid response from the government, which could then lead to dissatisfaction when such response is not forthcoming.

The tax lottery takes taxpayer involvement in a slightly different direction. Instead of connecting with the way the government uses their money, taxpayers connect with the way the goverment collects it.

"Most likely to participate would be frugal people who are careful with money," says John Welte, senior research scientist at the Research Institute on Addictions. According to him, the reason for that would be the work required to register the receipts with the government. "If there was no effort, everyone would do it."

Tax vigilantes

There is yet another upside to participating in tax lottery – a sense of justice. (This is where the post-Occupy era comes in).



After all, businesses and corporations are those that most often get away with exploiting the tax system. And if in the process of helping restore some justice in the tax system, you just happen to win a car or a chunk of cash – well, that's just your reward for a job well done.

The aspiring tax vigilantes don't have to wait for a tax lottery to play their part. Thanks to the IRS Whistleblower Office, they can report anyone they suspect of cheating on their taxes to the IRS. And there is a reward, according to the IRS.

The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30% of the additional tax, penalty and other amounts it collects.

The feeling of sticking it to the corporations might be enough to ignore the fact that the government is playing mind-games to increase tax compliance by both tax payers and companies. And while US taxpayers might jump at the chance to participate in a tax lottery, it might be a while yet before they get a chance.

Why US can't have its own tax lottery just yet

While these mind games might be exactly what IRS needs right now, there are many reasons why tax lottery would be hard to implement in the US.



For starters, Slovakia's value-added tax differs from the US sales tax. Under the value-added tax system, merchants are required to assess and collect the tax at every transaction. As products move through the supply chain, the tax paid on the products by acquiring merchants can be deducted from the tax that the merchants then charge to their customers.

Facebook Twitter Pinterest The Slovakian tax agency would like receipt of your receipts. Photograph: PhotoAlto/Alamy

"Value-added tax receipts issued to customers will list a unique identifier for the merchant. That’s generally not the case with US local sales receipts," says Kane. "They may list the merchant name but no unique number related to sales tax collection."

There is also no way to implement this on a federal level as there is no federal sales tax, explains Kane. It could, however, be relevant if US was to ever adopt a federal value-added tax.

It's an idea. But considering how any tax reform has proven elusive over the past two years even within the halls of Congress, it's unlikely lawmakers would ever cast their eyes to Europe for ideas.

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