America's Cosmic Tax Gap
by Sam Pizzigati
The federal government can now spot a bug in space -- so why can't they spot rich tax cheats here on the ground?
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.
Sam Pizzigati, an Institute for Policy Studies associate fellow, co-edits Inequality.org. His latest book is The Rich Don't Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Distributed by OtherWords.org.
More AMERICAN POLITICS ...
- Clinton Regains Lead
- How Much Candidates Spent Per Vote
- Tim Kaine Cheat Sheet
- Mike Pence by the Numbers
- Americans Divided on Bathroom Bill
- Clinton's Stubborn 75 Percent Chance Finally Dips Following Email Revelations
- The 2016 Democratic Convention by the Numbers
- The 2016 Republican Convention by the Numbers
- Trump's Fundraising Turnaround: June Marked Best Month So Far
- Trump Captures His Largest Lead So Far in Polls
- Trump Pulls Ahead of Clinton in Key Swing States
- Donald Trump and America B
- House Sit-In Would've Been More Powerful if It Rejected 'No Fly, No Buy'
- Clinton's Foreign Policy Poses a Challenge to the Left
- Hillary Wants to Bring Back Bill. She Shouldn't
- The Real Reason Republicans Are Going after the IRS
- ISIS Must Love Trump
- Can Trump Ride the Anti-Immigration Wave to the White House?
- Trouble for Donald Trump's Campaign
- America's Most Followed Members of Congress
- Hillary Clinton's Major Foreign Policy Address Was Anything But
- Donald Trump Down in the Polls After Rough Week on the Trail
- There's No More Denying It: Trump Is Openly Racist
- Donald Trump: Joker's Wild
- After Orlando: Twitter Recoils from Islamophobia, Takes Aim at Gun Laws
- How Much Blame Should Hillary Clinton Bear for Libya?
- Countries That Receive the Most Foreign Aid From the U.S.
- Hillary Clinton Secures Democratic Nomination
- Welcome to Half Dome, Sponsored by Nike
- Companies Need to Stop Bankrolling Hate
- For Billionaire Donors, Academic Integrity Comes Cheap
- America's Cosmic Tax Gap
- Trump's 'Realty Check' on Climate
- Putin and Trump: Symptoms of Creeping Caesarism
- Obama Promised Open Government, But Hasn't Delivered Yet
- A Coalition of the Unhinged
- Putting Free Speech Out to Pasture
- The Only Sane Conclusion from Orlando
- Orlando Shooting Fuels Debate on Gun Control
- They're Killing Us. Help Us Stop Them
- A Commencement Address for the Most Indebted Class Ever
- Our Poverty Myth
- Which States Have Banned Assault Weapons?
- Government Agencies that Spend the Most
- The Government Agencies that Employ the Most People
- Odd Ways Political Campaigns Spend Their Money
- Congressional Districts with the Youngest and Oldest Voters
- Trump Nabs First Lead Against Clinton in Poll
- Bernie's Bucks: Sanders' Fundraising and Spending Prowess in 5 Charts
- Clinton Holds Razor-Thin Lead
- Doling Out the Dough for Pro-Clinton Super PACs
- States with the Most Women in Politics
- Do First Ladies Influence the Popularity of Baby Names?
- Counties Where Medicare Spends the Most per Patient
- We Live in a Democracy, Not a Theocracy
- Is Trump an American Exceptionalist?
- Sanders vs Clinton on Economic Inequality
- Big Money in Politics Drives War
- Why Clinton Supports the Trans-Pacific Partnership and Trump Does Not
Politics: "America's Cosmic Tax Gap"