TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, March 27, 2018

Everyone Tries To Dodge The Tax Man, And It Keeps Getting Easier

538 (2015)FiveThirtyEight, Everyone Tries To Dodge The Tax Man, And It Keeps Getting Easier:

The bipartisan flirtation with avoiding taxes, through both legal and illegal means, threatens a tax system that is already bringing in historically low levels of revenue and that pays for everything from social security to military preparedness. Three foes in particular are enabling tax dodgers, making their ploys more common and more damaging: reduced support for the IRS, new incentives for people to become cheaters and widening partisan distrust.

Foe No. 1: A weakened IRS
There may be no purer example of D.C. dysfunction than the effort to underfund the IRS. That’s because the IRS isn’t like other agencies; when you cut its funding, you actually lose money.


Foe No. 2: Small businesses cheat, and tax reform fosters them
Tax evasion isn’t for everyone. Salaried workers who get regular paychecks and a W-2 form have fewer opportunities for it. The IRS simply knows too much about their pay, having gotten regular updates from their employer — not to mention regular payments via withholding.

Instead, the biggest cheaters are the ones for whom it’s easiest. And that tends to be on the business side, with an outsize role for smaller and less bureaucratic outfits — particularly small shops with single owners, self-employed freelance consultants and other independent contractors.


Foe No. 3: Partisanship
Norms matter, too, when it comes to tax evasion. Comparative studies of different tax systems have found that people are more likely to pay when they have faith in their government — and the overall fairness of its tax system.

This is a two-part problem for the United States. First, residents don’t have much faith in the U.S. government: Polls show that levels of trust hover around 20 percent, close to historic lows. Second, rising partisanship makes this trust problem harder to solve, because it means that whoever takes office will face opposition from a stalwart and sizable population of distrusting voters loyal to the other party. ...

One crucial piece of information is still missing in all this: How much are people currently concealing, year in and year out? The IRS makes that calculation as part of its “tax gap” reports, but that means that the most recent data, from 2008-2010, reflects a time when funding cuts were only beginning and the new Republican tax bill was barely a glimmer in the eye of current House Speaker Paul Ryan.

Even in 2008-2010, the share of taxable income being secreted from view was at its highest level since the mid-1980s, at 18.3 percent, although the IRS attributes part of this increase to technical changes in how it creates its estimates. Only the IRS knows for sure whether people have continued to hide more money from tax collectors since then, but apart from a few preliminary calls from legislators for extra funding to help the IRS oversee the latest tax reform package, there has been no effort to stop it. Quite the contrary, the foes of tax compliance have only gathered strength.

IRS News, Tax | Permalink


No. 1 and No. 3 are self-inflicted wounds. No. 2 is just a result of No.1 and No. 3.

Posted by: ruralcounsel | Mar 27, 2018 4:26:15 AM

Back in the 1970s, when I started with IRS, there were 8-10 thousand revenue officers in the collection division. These were the people who actually did enforced collections; they got the tough cases when people refused to file or pay. Today there are fewer than 2,000. And they have been emasculated by Congress and the past several administrations- seizures of property are rare. As a result, IRS has more than $ 400 billion in delinquent accounts they cannot manage. It is obvious they need more revenue officers.

Posted by: Smitty | Mar 27, 2018 7:29:58 AM

I trust everybody knows the IRS includes hobby losses as part of the tax gap. So even if Congress can't figure it out, it is still cheating.

Posted by: Dale Spradling | Mar 27, 2018 8:21:16 AM