FacebookTwitterRedditEmail

America’s Cosmic Tax Gap

shutterstock_324599615

The folks working for the federal government can do some incredible things.

Over at NASA, for instance, they’re now putting the finishing touches on the new James Webb Space Telescope — an instrument The Washington Post says will be powerful enough “to capture the heat signature of a bumblebee on the moon.”

Amazing. We can now spot a bug in space.

So why can’t we spot people who cheat on their taxes right here in the US of A?

A great many people, the IRS says in a new report, are stiffing Uncle Sam. Our federal “tax gap” — the disconnect between what taxpayers owe and what they eventually pay — is now averaging $406 billion a year.

That eye-opening figure comes from the 17 percent of taxpayers who misreport their income and underpay their taxes.

The other side of the coin is that 83 percent of Americans are paying their taxes, in full and on time. If you make a typical American income, you almost definitely fall within this 83 percent.

Actually, you don’t have much choice. All wage and salary income — the overwhelming bulk of the income average Americans receive — gets automatically reported to the IRS and faces automatic withholding from your paycheck.

Under this system, notes the new study, only 1 percent of overall paycheck income goes under- or unreported.

But some Americans — the nation’s most affluent — don’t make their money from wages and salaries. They get the bulk of their income instead from business profits, rents, and the money they make buying and selling assets.

Most of this income doesn’t get automatically reported, so few of these dollars ever face any withholding at all.

That wouldn’t matter all that much if the IRS had plenty of agents out in the field doing in-depth audits. But the IRS has been losing staff. The tax agency had 50,400 full-time-equivalent enforcement staff available in 2010. The 2016 figure: only 38,800.

With fewer watchdogs on the job, almost a fifth of individual tax due on capital gains and “partnership” income is going uncollected. An even higher share of rents, royalties, and “proprietor” income — nearly two-thirds — is escaping taxes.

How much of this tax cheating involves big-time business people and how much involves mom-and-pop business operators? The IRS doesn’t say. The agency doesn’t break down the new tax evasion data by taxpayer income class.

But eight years ago, economists Andrew Johns and Joel Slemrod went through earlier IRS raw data and did just that.

Americans who make between $500,000 and $1 million a year, these two researchers found, misreport their income at triple the rate of taxpayers making between $30,000 and $50,000, and well over double the rate of taxpayers making $50,000 to $100,000.

One key point to keep in mind here: We’re not talking about loopholes in the tax code when we talk about the “tax gap.” Loopholes let the deep-pocket set legally sidestep what otherwise would be a significantly higher tax bill. The IRS tax gap numbers only apply to outright illegal tax cheating.

The rich engaging in this cheating do get nabbed sometimes. This May, for example, a federal judge found that Texas tycoon Sam Wyly engaged in “deceptive and fraudulent actions” to avoid taxes on over $1 billion of his assets.

But the Sam Wylys remain outliers. Most high-income tax cheats don’t get caught. And that won’t change until Congress starts subjecting the incomes of the awesomely affluent to the same reporting and withholding standards that apply to the incomes of average Americans.

This column is distributed by Other Words.

More articles by:

Sam Pizzigati writes on inequality for the Institute for Policy Studies. His latest book is The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 (Seven Stories Press). 

bernie-the-sandernistas-cover-344x550

April 24, 2019
Susan Babbitt
Disdain and Dignity: An Old (Anti-Imperialist) Story
Adam Jonas Horowitz
Letter to the Emperor
Lawrence Davidson
A Decisive Struggle For Our Future
John Steppling
The Mandate for Israel: Keep the Arabs Down
Victor Grossman
Many Feet
Cira Pascual Marquina
The Commune is the Supreme Expression of Participatory Democracy: a Conversation with Anacaona Marin of El Panal Commune
Binoy Kampmark
Failed States and Militias: General Khalifa Haftar Moves on Tripoli
Dean Baker
Payments to Hospitals Aren’t Going to Hospital Buildings
Alvaro Huerta
Top Ten List in Defense of MEChA
Colin Todhunter
As the 2019 Indian General Election Takes Place, Are the Nation’s Farmers Being Dealt a Knock-Out Blow?
Charlie Gers
Trump’s Transgender Troops Ban is un-American and Inhumane
Barbara Nimri Aziz
Just Another Spring in Progress?
Thomas Knapp
On Obstruction, the Mueller Report is Clintonesque
Elliot Sperber
Every Truck’s a Garbage Truck
April 23, 2019
Peter Belmont
The Monroe Doctrine is Back, and as the Latest US Attack on Cuba Shows, Its Purpose is to Serve the Neoliberal Order
David Schultz
The Mueller Report: Trump Too Inept to Obstruct Justice
Geoff Beckman
Crazy Uncle Joe and the Can’t We All Just Get Along Democrats
Medea Benjamin
Activists Protect DC Venezuelan Embassy from US-supported Coup
Patrick Cockburn
What Revolutionaries in the Middle East Have Learned Since the Arab Spring
Jim Goodman
Don’t Fall for the Hype of Free Trade Agreements
Lance Olsen
Climate and Forests: Land Managers Must Adapt, and Conservationists, Too
William Minter
The Coming Ebola Epidemic
Tony McKenna
Stephen King’s IT: a 2019 Retrospective
David Swanson
Pentagon Claims 1,100 High Schools Bar Recruiters; Peace Activists Offer $1,000 Award If Any Such School Can Be Found
Gary Olson
A Few Comments on the recent PBS Series: Reconstruction: America After the Civil War
April 22, 2019
Melvin Goodman
The NYTs Tries to Rehabilitate Bloody Gina Haspel
Robert Fisk
After ISIS, a Divided Iraq, Wounded and Grief-Stricken
Binoy Kampmark
Julian Assange as Neuroses
John Laforge
Chernobyl’s Deadly Effects Estimates Vary
Kenneth Surin
Mueller Time? Not for Now
Cesar Chelala
Yemen: The Triumph of Barbarism
Kerron Ó Luain
What the “White Irish Slaves” Meme Tells Us About Identity Politics
Andy Piascik
Grocery Store Workers Take on Billion Dollar Multinational
Seiji Yamada – Gregory G. Maskarinec
Health as a Human Right: No Migrants Need Apply
Howard Lisnoff
Loose Bullets and Loose Cannons
Ricardo Alarcón de Quesada
Dreaming in Miami
Graham Peebles
Consuming Stuff: The Polluting World of Fashion
Robert Dodge
Earth Day: Our Planet in Peril
Weekend Edition
April 19, 2019
Friday - Sunday
Andrew Levine
What Will It Take For Trump to Get His Due?
Roy Eidelson
Is the American Psychological Association Addicted to Militarism and War?
Jeffrey St. Clair
Roaming Charges: Time is Blind, Man is Stupid
Joshua Frank
Top 20 Mueller Report “Findings”
Rob Urie
Why Russiagate Will Never Go Away
Paul Street
Stephen Moore Gets Something Right: It’s Capitalism vs. Democracy
Russell Mokhiber
Why Boeing and Its Executives Should be Prosecuted for Manslaughter
FacebookTwitterRedditEmail