The Case for a Robust Attack on the Tax Gap

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uncledad
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The Case for a Robust Attack on the Tax Gap

Unread post by uncledad »

A well-functioning tax system requires that everyone pays the taxes they owe. Today, the “tax gap”—the difference between taxes that are owed and collected—totals around $600 billion annually and will mean approximately $7 trillion of lost tax revenue over the next decade.

The sheer magnitude of lost revenue is striking: it is equal to 3 percent of GDP, or all the income taxes paid by the lowest earning 90 percent of taxpayers.

The tax gap can be a major source of inequity. Today’s tax code contains two sets of rules: one for regular wage and salary workers who report virtually all the income they earn; and another for wealthy taxpayers, who are often able to avoid a large share of the taxes they owe. As Table 1 demonstrates, estimates from academic researchers suggest that more than $160 billion lost annually is from taxes that top 1 percent choose not to pay.

Image

But the distribution of the underreporting tax gap is also the natural byproduct of the current information reporting regime. There is a direct relationship between the information the IRS has at its disposal to verify that a taxpayer has properly paid her tax liabilities, and her voluntary compliance rate.

For ordinary wage and salary income, compliance with income tax liabilities is nearly perfect (1 percent noncompliance rate). In stark contrast, for opaque income sources that accrue disproportionately to higher earners—like partnership income, proprietorship income, and rental income—noncompliance can reach 55 percent.

Image

In fact, about half of the individual income tax gap accrues to income streams from proprietorships, partnerships, and S-corporations, where there is either little or no information available to the IRS to verify the veracity of tax filings.

https://home.treasury.gov/news/featured ... he-tax-gap
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Re: The Case for a Robust Attack on the Tax Gap

Unread post by fools_gold »

uncledad wrote: September 10th, 2021, 8:53 am The tax gap can be a major source of inequity. Today’s tax code contains two sets of rules: one for regular wage and salary workers who report virtually all the income they earn; and another for wealthy taxpayers, who are often able to avoid a large share of the taxes they owe.
And it is perfectly legal and permissible to "avoid" any taxes. In fact, if they "avoided" them, they don't "owe" them. Taking the deductions and exceptions that are voted on and passed by the Congress is not illegal. It is, in fact, to be encouraged, to support whatever purpose Congress had in mind when they passed those tax avoidance measures.

Did the article choose the wrong word? Did they actually mean "evade" the taxes that they owe? That would be a different case. Was this another case of sloppy journalism? They don't know the difference between tax avoidance and tax evasion?

And how should the government go about "robustly attacking" this problem?
"It is the pity of the world that we must come to wisdom from fire. Why can no man learn wisdom from another?"
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Re: The Case for a Robust Attack on the Tax Gap

Unread post by uncledad »

fools_gold wrote: September 10th, 2021, 9:49 am And it is perfectly legal and permissible to "avoid" any taxes. In fact, if they "avoided" them, they don't "owe" them. Taking the deductions and exceptions that are voted on and passed by the Congress is not illegal. It is, in fact, to be encouraged, to support whatever purpose Congress had in mind when they passed those tax avoidance measures.

Did the article choose the wrong word? Did they actually mean "evade" the taxes that they owe? That would be a different case. Was this another case of sloppy journalism? They don't know the difference between tax avoidance and tax evasion?

And how should the government go about "robustly attacking" this problem?
Not reporting income is tax evasion. Under reporting income to avoid taxation is tax evasion.

The article is a press release from the Treasury Department. As it's a D driven admin, it was written to present their position with political correctness in mind.

Most avoid paying taxes by taking all the deductions allowed on their reported income. As stated in the article, the IRS has 99% of the information of wage earners. Not so much on proprietorships, partnerships, and alike that under report income or avoid reporting income altogether.

Your SS, FERS payouts, Mil pension, all go thru the recording keeping of the US Gov. Wage earners are tracked by corporate records of W 2, 1099's etc. Front to back there's little possibility to under report income, even less to avoid reporting income, without being found out.

What the JB admin wants is to fund the IRS to audit those making over $ 400,000 to keep them in compliance and pay taxes owed. Taxes that they avoided paying in the near past.

The attempt is to remove the dependence on non-compliance with the law knowing an audit is more likely than less likely.

Personally, I've gone thru two tax audits. One state and one Fed. My income is below $ 400,000. The state audit cost me $ 5000 to pay back taxes over an audit of a three year period. Why? The income was reported, the deduction of part of the income was disallowed.

Whereas, the Fed audit came back 100% in compliance and that cover two of the three years. The better news was, the State changed its tax code to align with the Fed code a few years later.
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Re: The Case for a Robust Attack on the Tax Gap

Unread post by Baron »

fools_gold wrote: September 10th, 2021, 9:49 am Did the article choose the wrong word? Did they actually mean "evade" the taxes that they owe? That would be a different case. Was this another case of sloppy journalism? They don't know the difference between tax avoidance and tax evasion?
Fool_Gold,

They know the difference. The goal is to conflate the two terms in the interest of Social Justice.

Regards,
Baron
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Re: The Case for a Robust Attack on the Tax Gap

Unread post by Baron »

UncleDad,

The problem with the so-called Tax Gap is that is even perceived to be a problem at all.

The tax code has three major objectives:
1. To provide lawmakers with a source of unending contributions;
2. To punish success and seek social justice, and
3. To minimally support the budget, which is already supported by deficit spending.

I am very adept at "tax avoidance," but I stop short of actual "evasion," because I don't want any more of my money forcibly taken, and a vacation at the GrayBar Motel is not on my ToDo list.

The widely recognized solution to this non-problem is a Consumption Tax -- either VAT or National Sales Tax. Then the whimpering weenies could stop obsessing about how much money Jeff Bezos makes, and just encourage him to spend more. It would also solve the problem of non-payment by illegals, along with other benefits.

There is much to discuss here, which I am willing to do as long as Alec keeps inviting me back. (Inside joke)

Take care,
Baron
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Re: The Case for a Robust Attack on the Tax Gap

Unread post by uncledad »

Baron wrote: September 10th, 2021, 12:10 pm UncleDad,

The problem with the so-called Tax Gap is that is even perceived to be a problem at all.

The tax code has three major objectives:
1. To provide lawmakers with a source of unending contributions;
2. To punish success and seek social justice, and
3. To minimally support the budget, which is already supported by deficit spending.

I am very adept at "tax avoidance," but I stop short of actual "evasion," because I don't want any more of my money forcibly taken, and a vacation at the GrayBar Motel is not on my ToDo list.

The widely recognized solution to this non-problem is a Consumption Tax -- either VAT or National Sales Tax. Then the whimpering weenies could stop obsessing about how much money Jeff Bezos makes, and just encourage him to spend more. It would also solve the problem of non-payment by illegals, along with other benefits.

There is much to discuss here, which I am willing to do as long as Alec keeps inviting me back. (Inside joke)

Take care,
Baron
Number 1 true.

Number 2 disagree.

Number 3 close enough for government work.

I have problems with a consumption tax. Will the powers that be exempt themselves by adjusting the tax code they wrote for themselves? Will it bring an end to income taxes or is this an additional tax scheme?

How will it effect the distribution of Federal input to States spending? Will States be forced to eliminate sales/service taxes? Will it include utilities? Will it include religious organizations?

Will there be discounts or rebates adjusted for income levels?

Bezos can do what ever he wants, provided he paid on par with the not so rich and infamous.
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Re: The Case for a Robust Attack on the Tax Gap

Unread post by Baron »

uncledad wrote: September 10th, 2021, 2:01 pm Number 1 true.
Number 2 disagree.
Number 3 close enough for government work.

I have problems with a consumption tax. . . .

UncleDad,

I like the name. I never was one of those. I was GrandPa-Dad for a few years. That assignment is over now, after having been somewhat successfully completed. I have a sense that you and I have been a little more successful than some of our fellow citizens. That bothers me not in the least, because I know where I started and what I had to do to achieve it. Whatever I have now, I deserve it.

I like Jeff Bezos. He and a few others ought to be American heroes. He had an idea, executed it brilliantly, gave the customers what they wanted -- and became rich. Good for him!

As to my 2nd purpose of the tax code (To punish success and seek social justice.), that is, in my opinion, what it has become, as the proportion of non-taxpaying voters increases.

I have a simple view of the Consumption Tax idea:
1 - A constitutional prohibition of any kind of income tax.
2 - No exemptions or rebates of any kind except for goods shipped outside the country.
3 - The federal government should not be subsidizing the states anyway, except for services rendered.
4 - The states will adjust to whatever scheme fits their constituency.

That is the Cliff Notes version, but it doesn't matter anyway, except maybe after the revolution. It won't happen in my lifetime. The lawmakers are never, ever, going to give up the power that the tax code gives them. They would vote for that right after they adopted term limits for themselves.

Enuf for now. My dogs want to go down by the creek.

Take care,
Baron
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Re: The Case for a Robust Attack on the Tax Gap

Unread post by Vercingetorix »

uncledad wrote: September 10th, 2021, 8:53 am A well-functioning tax system requires that everyone pays the taxes they owe. Today, the “tax gap”—the difference between taxes that are owed and collected—totals around $600 billion annually and will mean approximately $7 trillion of lost tax revenue over the next decade.

The sheer magnitude of lost revenue is striking: it is equal to 3 percent of GDP, or all the income taxes paid by the lowest earning 90 percent of taxpayers.

The tax gap can be a major source of inequity. Today’s tax code contains two sets of rules: one for regular wage and salary workers who report virtually all the income they earn; and another for wealthy taxpayers, who are often able to avoid a large share of the taxes they owe. As Table 1 demonstrates, estimates from academic researchers suggest that more than $160 billion lost annually is from taxes that top 1 percent choose not to pay.

Image

But the distribution of the underreporting tax gap is also the natural byproduct of the current information reporting regime. There is a direct relationship between the information the IRS has at its disposal to verify that a taxpayer has properly paid her tax liabilities, and her voluntary compliance rate.

For ordinary wage and salary income, compliance with income tax liabilities is nearly perfect (1 percent noncompliance rate). In stark contrast, for opaque income sources that accrue disproportionately to higher earners—like partnership income, proprietorship income, and rental income—noncompliance can reach 55 percent.

Image

In fact, about half of the individual income tax gap accrues to income streams from proprietorships, partnerships, and S-corporations, where there is either little or no information available to the IRS to verify the veracity of tax filings.

https://home.treasury.gov/news/featured ... he-tax-gap
Worried about tax inequality. Create a flat tax insteaf of continuing to foment class warfare.
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Re: The Case for a Robust Attack on the Tax Gap

Unread post by Charlie Mike »

Abolish the income tax for excise taxes, exempting food, educational services, and medical care.

Problem solved.
I'm not here for peace. I have no interest in it. You had your chance. You will either cease, or it will get worse.
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