Wealthy Tax Cheats
Tax systems that heavily tax the rich are asking for trouble — or so the politicians who cater to the 1 percent incessantly argue. The higher the tax rate on high incomes, their argument goes, the greater the incentive the rich have to waste time and energy figuring out ways to pay less.
In 2001 and again in 2003, this convenient excuse helped the Bush White House chop away at the taxes the IRS expects rich people to pay. The government trimmed the tax rate on top tax-bracket income from 39.6 to 35 percent and slashed the rates on capital gains and dividends to 15 percent from 20 and 39.6 percent, respectively.
According to rich-people-friendly right-wing rhetoric, these cuts should have boosted tax compliance.
Instead, tax evasion actually increased, rising to $385 billion in 2006 from $290 billion five years earlier, according to a new IRS study.
Need some context for all these billions? The 2006 federal budget deficit clocked in at $248 billion. Without tax evasion, Washington would have had a hefty surplus that year.
Who's doing all this tax cheating? Not average Americans.
Average Americans get most of their income from wages and salaries. Almost all of this income faces paycheck withholding. The result: Only 1 percent of the taxes due on wages and salary, the new IRS study reports, goes uncollected.
Rich Americans, by contrast, collect huge chunks of their annual income from capital gains, business ownership, and other sources of income that face neither rigorous reporting requirements nor withholding.
Tax evasion for the income category that includes capital gains and private equity partnerships, the IRS calculates, ran at an 11-percent rate in 2006, ten times the evasion rate for wages and salaries.
The new IRS report doesn't break down the new tax evasion data by taxpayer income class. But five years ago, the last time the IRS released a major tax evasion analysis, two analysts — IRS economist Andrew Johns and the University of Michigan's Joel Slemrod — went through the raw IRS data and did just that.
Americans who make between $500,000 and $1 million a year, the pair found, underreport their incomes by a whopping 21 percent, triple the 7-percent "misreport" rate of taxpayers making between $30,000 and $50,000, and more than 2.5 times the 8-percent cheating rate by taxpayers making $50,000 to $100,000.
The new IRS tax evasion numbers cover the 2006 federal fiscal year. Has the tax evasion story improved since then? Some signs certainly do seem positive.
Earlier this month, the IRS announced that audit rates on tax returns reporting over $1 million a year in income have doubled over recent years. In 2011, 12 percent of millionaires faced audits, up from only 6 percent in 2009.
And the IRS is toughening up elsewhere as well. The agency has created a "Global High Wealth" unit, an initiative designed "to better cope with the growing complexity of income and assets of the high-income, high-wealth population."
IRS investigators are also going to court against Swiss and other foreign banks that have helped wealthy Americans hide their assets.
But this momentum may be difficult to sustain. Budget cuts have undermined the IRS enforcement capacity. The agency's $11.8-billion budget for 2012 stands $300 million below last year's budget — and $1.5 billion under what the Obama White House requested.
The IRS this year, enforcement chief Steven Miller acknowledges, will have about 3,000 fewer enforcement staff on the job than in 2010. The "imbalance" between the agency's workload and resources, IRS national taxpayer advocate Nina Olson recently told Congress, "is becoming unmanageable."
More budget resources would certainly help turn that situation around. Every $1 added to the IRS for enforcement, the data shows, yields over $4 in revenue.
Sam Pizzigati edits Too Much, the weekly Institute for Policy Studies newsletter on excess and inequality. Visit www.toomuchonline.org for a longer version of this essay
Read the latest political news.
- Wealthy Tax Cheats
- The 1 Percent Candidate
- Larry Sabato Warns of Electoral 'Newt-Mare'
- The Hottest TV Drama in 2012
- Trailing Newt Gingrich Makes Plea for Votes
- Newt Gingrich Looks For Winning Strategy
- Eisenhower's 'Military-Industrial Complex' and JFK's Inaugural
- Franklin Delano Roosevelt and Those Who Hated Him
- Do All the GOP Debates Matter?
- Will Dems Call New Tax Law 'The Romney Rule?'
- 'Buffett Rule' Could Create Unintended Consequences
- Why Swing State Republican Governors Will Get Obama Re-Elected
- State of the Union Speech Focuses on Middle Class Success
- Will Obama's Mortgage Refinance Plan Be D.O.A.?
- State of the Union Shows Few Opportunities for Congressional Action
- Obama Uses State of the Union Speech to Rebuff GOP Attacks
- Obama Channels Clinton in State of the Union
- Obama Crafted a Winning Message
- Winning Words, But Not a Winner
- Obama's Speech Will Be Forgotten
- State of the Union Was Typical for Election Year
- Obama's State of the Union Failed
- Incumbents Have History on Their Side
- Obama's Side of the Nation's Story
- Justice John Paul Stevens on How the Supreme Court Works
- There Is a Judicial Confirmation Crisis and the GOP Is Causing It
Pentagon Budget Ends Post-9/11 Era:
Ushers in Pacific Era
- Senator Puts Nuclear Arsenal in Doubt
- Management Tips Mitt Romney Can Use to Save His Campaign
- Rick Santorum's New Target: Gingrich's Reagan Credentials
- GOP Not As Split as the Media Wants You to Think
- Primary Primer: 5 Things to Know about Florida
- On Courting Public Sentiment
- Ike's Lessons for Obama
- Bill Clinton Says Gingrich 'Just Like Romney'
- Newt Gingrich: Buying Our Future
- The Off-the-Radar Congressional Targets of 2012
- Green Energy Investments Pay Off in the Long Run
- Investment in Clean Energy Production Is a Must
- It's Up to the Private Sector to Invest in New Technology
- Competition, Not Handouts, Should Determine Role of Green Energy
- Government Has a History Supporting Emerging Industries
- Green Energy Dramatically Benefits the Nation
- Subsidies for Green Energy Do Not Help American Consumers
- Super PACs: Destroy Our Future
- Super PACs: Super-sized Influence, Super Lack of Transparency
- Super PACs Are a Form of Political Participation
- Super PACs Need to Disclose Political Activity
- Super PACs Engage in More Positive Than Negative Messaging
- Super PACs Enhance Democracy
- Super PACs Make It Harder for Average Americans to be Heard
- Super PACs Level the Playing Field
- Super PACs Promote Attack Ads and Special Interests
- Dollar Democracy
- 2012 Election Will Decide Which New Wars Will Be Waged
- Why 2012 Will Be Obama-Clinton vs Romney-Rubio
- Revenge of the Internet Nerds
- The Decline of Public Good
- We Must Reignite America's Can-Do Spirit
Free Enterprise on Trial:
Who Bears the Risks?
- Mitt Romney Goes on the Offensive
- Bain Capitalism
- How a Populist Obama Can Win
- Obama: A Question of Priorities
- Newtzilla Conquers All?
- Gingrich Follows GOP Playbook on Racism
- Newt Gingrich as Insurgent
- Newt Gingrich: It's Complicated
- Gingrich and The Politics of Division
- Ron Paul: The Great Contrarian
- Ron Paul and Louis Farrakhan - Birds of a Feather?
- Ron Paul's Kooky Moment
- Ron Paul: Foolish Consistency or Just Foolishness?
- Trying to Stop Mitt Romney
- Mitt Romney's Authenticity Problem
- Romney's Big Problem: Hispanic Voters
- Romney's Lies: Mitt Romney Has a Truth Problem
- Romney's Wealth and Influence on the Campaign Trail
- Mitt Romney: Electability vs Likability
- Romney's Backward Views on States Rights
- Mitt Romney Must Win Battle of the Bloat
- Mitt Romney: People Inc.
- The Luck of Mitt Romney
- Romney's 'Mormon Question'
- Would Today's GOP Elect Ronald Reagan?
- Defense Spending: A Shovel-Ready Investment
- Don't Die Stupid
- Three Conservative Victories
- Not By Sight, But By Faith
- To Spur Economy, United States Must Reform Legal Immigration
- Five Reasons Rick Perry Failed
- Overthrow Wall Street
- Civilization in Reverse
- Momentum of Cynicism
- China's JFK moment
Wealthy Tax Cheats | Politics
Distributed via OtherWords (OtherWords.org)