The richest Americans hide more than 20 percent of their income from the Internal Revenue Service, according to a new comprehensive tax evasion estimate, with the top 1 percent of employees accounting for more than a third of federally unpaid taxes.
That cost the federal government $ 175 billion a year, according to a group of academic S IRS economists.
The data comes as Senate Democrats debate raising superpower health taxes to reduce inequality and fund their legislative priorities. President Biden, in sharp contrast to the previous one, announced that he wanted to raise taxes on the wealthy, corporations and estates.
Researchers say cuts in IRS funding over the years, coupled with the added complexity of tax evasion tactics for the rich, have avoided tax evasion more than ever. And they say that these estimates probably underestimate the real extent of tax evasion across the income spectrum.
The IRS randomly checks for returns to measure tax evasion. But such reviews provide little evidence of avoidance among the extremely rich, in part because the rich use complex accounting techniques that are difficult to find, such as offshore tax havens, transition businesses, and complex security services.
The IRS is trying to correct this through a number of statistical methods. But new research shows that even standard IRS corrections underestimate the real extent of tax evasion among the rich.
Researchers have been able to prove this since the IRS և Department of Justice in 2008 stepped up tax evasion measures. These efforts led to the creation of a voluntary offshore disclosure program that allowed taxpayers to identify previously hidden offshore assets and pay a penalty in return. for immunity from prosecution. According to the IRS, tens of thousands of taxpayers used the program before it was discontinued in 2018.
Hundreds of these taxpayers, it turns out, were randomly checked before the program was created. The researchers reconciled those audits with further findings and found that IRS auditors released offshore assets approximately 93% of the time.
Moreover, these fortunes, which took refuge abroad, were concentrated almost exclusively among high-income earners.
The study also found evidence of widespread under-reporting of income among business owners whose income is taxed on the profitability of their owners. “Up to 35% of the income earned above is not comprehensively examined in the context of a random audit,” the authors found.
Reporting only on under-reporting from overseas tax havens, the authors have compiled an estimate of the actual tax-exempt distribution of US taxpayers in the income segment, avoiding taxes on about 7% of their income. In the top five taxpayers, however, avoidance rises by about 10%.
But avoidance peaks in the richest 5% who earn at least $ 200,000 and who, like their associates, make up more than a third of their total national earnings. Taxpayers in this group hide more than 20% of their income from tax collection.
In total, almost $ 1 out of every $ 12 earned in the United States is covered by federal income taxes because of the sophisticated techniques of avoiding people who work more than $ 200,000 a year.
“The IRS needs a lot more resources from Congress,” Daniel Reck, lead author of the study, said in an email. He said the agency should “invest in more comprehensive forensic strategies, which include auditing individuals, businesses – and other private entities (charities, trusts, etc.). It is necessary to hire and train a large number of experts to conduct these more comprehensive examinations. ”
“They can absolutely do all this, but budget cuts have severely limited their ability to do so,” he added.
Since 2010, total IRS funding has been cut by about 20%, according to a recent testimony by US Congressional Commissioner Charles Rettig. The number of enforcement agents employed by the agency decreased by 30% during the same period.
These staff reductions, in turn, have led to a sharp decline in audit rates, especially for wealthy taxpayers. In mid-2010, about 30% of the richest 0.01% of taxpayers, earning at least $ 10 million a year, were usually audited. By 2019, that number had fallen below 10%.
Urban Institute tax policy expert Steven Rosenthal, who was not involved in the study, warned that tax return data from the pre-offshore era of pressure may be limited in terms of what it can tell us today about avoidance.
“Since the 2000s, the IRS has been effectively closing offshore accounts with aggressive coercion, reporting, etc.,” he said. By mail: “And I do not see why we expect taxpayers who used offshore accounts in the 2000s to shift to other illegal activities.”
But, Rick countered, “it would be a great mistake to say that avoiding offshore does not actually exist in 2021.” To prove his point, he cites whistleblower reports that big banks continue to help wealthy customers raise money after breaking it. Treasury Department report criticizing the IRS for not using offshore avoidance aggressively enough և Billionaire Planning Executive Executive Plan 2020 Robert Brockman on charges of tax evasion by engaging in offshore farms.
“People may have a harder time now just to amass wealth in Switzerland, but they can still create offshore, complex networks of US entities, take on ridiculously aggressive tax positions, as Brockman did,” Reck said.
Rosenthal also noted that the distinction between tax evasion and illegal tax evasion is blurred at the top of the income spectrum, where billionaires like Donald Trump use teams of lawyers and accountants to break the tax code limits in the event of Trump. Allowing him to pay just $ 750 million in millions of dollars in 2017.
“It is definitely not illegal to lower your tax bill from very complicated structures,” he said. “The IRS can win or lose in court,” or they can just settle the matter somewhere in the middle.
“Hiring more agents would help,” he added. But “the solution to this avoidance is to write better tax rules above.”