What The IRS Could Learn From Mormons

Mar 1, 2012
Originally published on March 2, 2012 6:36 am

Many religious traditions stress the importance of charity. But Mormons are remarkable for the amount and the precision with which they give to their church.

The Church of Jesus Christ of Latter-day Saints teaches that each Mormon in good standing should tithe 10 percent of his or her income. The money goes right to church headquarters in Salt Lake City and then is distributed back to congregations around the world.

"That's written in stone, and preached from the pulpit," says Gordon Dahl, an economist at the University of California, San Diego, who is Mormon.

But while the church is very precise about that figure — 10 percent of income — it does not tell its members what income means.

"Which is really interesting to us economists, because we want to know how people define income," says Dahl.

As anyone who has ever done their taxes knows, figuring out what counts as income is harder than it sounds.

The IRS has hundreds of pages of rules about these things, but Dahl wanted to know how people think about money when only God is watching. He thought the IRS could actually learn from how Mormons make these decisions.

Studies have shown that people are more willing to pay taxes if they think taxes are fair. People who think someone else is getting special treatment are more likely to cheat.

Dahl theorized that if you know how people naturally think of income, you can craft the tax laws to better match people's motivations.

But first he had to get Mormons to tell their stories.

Tithing is a very personal act, and Dahl says people were unwilling to talk about how much money they sent in. So Dahl and his colleague Michael Ransom surveyed 1,200 Mormons and presented them with hypothetical questions about giving.

"Suppose your parents gave you $500 for Christmas," he told them. "Would you pay tithing on that money?"

That was a resounding yes among Mormons. Gifts of cash are definitely considered income.

What about a gift of a sofa worth $500? Not so much. Few Mormons said they would tithe on that.

What if you got a cash gift from someone you knew had already paid tithes on the money? The majority of Mormons in the study said they were happy to tithe on it again.

The concept of double tithing doesn't seem to upset Mormons the same way double taxation does. In fact, Dahl found that Mormons were willing to tithe on money that came out of a retirement account — even if they had already tithed 10 percent of it before they invested.

David Shapiro, a financial adviser in Littleton, Colo., says there is often a difference of opinion on these issues within Mormonism. In fact, Shapiro and his wife had different tithing styles when he got married.

He tithed on his gross, pretax income. His wife tithed on her net income — she took out taxes first, then tithed on the rest.

"Her logic was [that the] money I pay to the government isn't money in my pocket," Shapiro says. "So I shouldn't have to pay tithing on that"

Shapiro eventually convinced his wife to pay on the larger amount.

Dahl says he found that Mormons, in general, tended to adopt the more simple and generous definitions of income.

They would pay a full tithe on the profit when they sold a stock. Yet, if they dumped a stock for a loss, they wouldn't use the loss to offset and lower the income they tithed on. Unlike taxpayers, the Mormons in the study weren't big fans of taking deductions so they could send less money to the church.

"They're worried about being petty with God," Dahl says.

I asked a Mormon bishop in Salt Lake City if a few more rules defining income might make tithing easier on Mormons or bring in more money for the church. He said all this soul-searching about what you owe God is kind of the point.

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Most religions encourage some form of charity or giving. The Mormon Church is very specific about the amount they ask for. Here's Mitt Romney speaking on Fox News.


MONTAGNE: Such dedication to giving is not unusual among Mormons. They have a very high rate of tithing, as it's called - so high, in fact, that it sparked the interest of economists. Robert Smith from NPR's Planet Money team says the Mormons teach a surprising lesson about how people relate to money.

ROBERT SMITH, BYLINE: Gordon Dahl is a Mormon. When he was growing up, he learned the simple rules of tithing.

GORDON DAHL: It's very clear that you're supposed to donate 10 percent of your income to the church. That's written in stone. Everyone knows that, and that's preached from the pulpit.

SMITH: Ah, but once Dahl became an economist - he works at UC San Diego now - he noticed something complex about tithing.

DAHL: They don't tell you what to donate 10 percent on. In other words, there is no definition of what income is. Which is really interesting to us as economists, because we want to know: How do people define income?

SMITH: It's a trickier question than you might think. Sure, your paycheck is income. But is a gift from a loved one income? What if the value of your home goes up?

The IRS has hundreds of pages of rules about these kind of things. But Professor Dahl wanted to know if people, in their hearts, had such a complicated view of money.

The Mormons were the perfect test subjects. They take tithing very seriously. And they have an incentive to be honest. After all, God is watching. So Dahl started to survey church members with hypothetical questions.

DAHL: We might ask: Suppose your parents gave you $500 for Christmas, would you pay tithing on that money?

SMITH: Most Mormons said yeah. Gifts of cash were definitely considered income. So Dahl changed it up? What about a gift of furniture?

DAHL: If your parents gave you, for example, a sofa worth $500, people wouldn't tithe the value of the gift. So, in other words, we got our first glimpse of the way people think about income is, as I'd like to say it, when they see green.

SMITH: Cash. So far, the Mormon mind isn't too different from the rules of the IRS. But the questions get trickier. We put some of the dilemmas to David Shapiro, a Mormon and a financial advisor in Littleton, Colorado.

If you find a 20 dollar bill would you kick back $2 to the Church of Jesus Christ of Latter Day Saints?

DAVID SHAPIRO: Yeah, I would.

SMITH: If you have a garage sale, would you tithe your results of the garage sale?

SHAPIRO: Umm. All of the stuff that we sold at the garage sale has already been tithed because we tithe on gross, so probably not.

MONTAGNE: It's not unusual for Mormons to have these kind of discussions. In fact, Shapiro had to have this talk with his wife when they got married. He tithes on his gross income - meaning before taxes. His wife...

SHAPIRO: She paid tithing on the net of her income.

SMITH: After taxes?

SHAPIRO: After taxes. Her logic was money that I pay to the government isn't money in my pocket, so I shouldn't have to pay tithing on that.

SMITH: Shapiro eventually convinced her to pay on the larger amount.

Gordon Dahl, the economist, says that he found that Mormons, when in doubt, tended to adopt the more simple and generous definitions of income. So, for instance in his survey, Mormons would generally say that they tithe 10 percent on the profit that they make from selling a stock.

DAHL: If you ask them a separate question and say, suppose your stock loses value, would you deduct this from your income before paying tithing? Kind of surprising to me, most people said no.

SMITH: See, when people deal with the IRS they take every deduction. When Mormons approach tithing...

DAHL: They 're worried about being petty with God. I don't want to be petty with God.


SMITH: There is a serious reason to look at all this stuff. It goes back again to the IRS. Dahl says that studies have shown that people are more willing to pay taxes if they feel that it's fair.

SHAPIRO: When people think a certain aspect of the tax code is not fair, they're more likely to try to cheat, right? And so it's important to know what people think of as fair. And when you have to define it yourself for religion, you get to decide for yourself what you think is fair.

SMITH: Of course, as Dahl found out, this deciding for yourself can get complicated. I asked a Mormon bishop in Salt Lake if a few more rules might make tithing easier on Mormons. He said all this soul-searching about what you owe God is, kind of, the point.

Robert Smith, NPR News.


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