Monday, April 16, 2007
The dirty little secret of tax evasion
The Washington Post is running a virtually perennial story about the hundreds of billions of dollars in taxes that go uncollected because of evasion. Once again, lawmakers are hoping to collect a larger proportion of levied taxes. Once again, they will learn that virtually all measures designed to raise the proportion of owed taxes that are actually paid will engender enormous hostility from voters. The collection rate has been virtually constant, at 81-84%, for forty years notwithstanding numerous efforts to move the meter -- neither a meaner IRS nor a nicer one seems to have made much of a difference.
The article does verify something I have long believed: that our worst tax evaders are small businesses. Yes, the revered small businessman, who is almost as sacrosanct in American culture as the "family farmer" (who is, by the way, just another version of the small businessman), is our biggest tax cheat. Whether you are a Republican or a Democrat, that is an inconvenient truth. The immediate next inconvenient truth is that small businesses create a large proportion of the incremental jobs in the economy. Raising their actual taxes, even if they owe them anyway, will adversely affect their marginal propensity to hire new employees.
12 Comments:
By 
, at
Mon Apr 16, 10:14:00 AM:
They sure dont misname it its the INFERNAL REVENUE SERVICE
By 
Unknown, at
Mon Apr 16, 11:04:00 AM:
Perhaps we should expand the IRS, as the article implicitly promotes. Or, maybe we should consider replacing today's form of income taxes with a flat tax or even an expanded national sales tax and then we might capture some of this so-called "missing money".
Then again, the very existence of the money might just be a mirage, an illusion created by those in Washington with a vested interest in promoting more spending at the IRS, like Computer Sciences Corporation or American Mangement Systems.
Hmmm. What would Occams Razor teach us in this instance, I wonder?
By Grumpy Old Man, at
Mon Apr 16, 11:11:00 AM:
As usual, the working stiff gets the shaft.
By , at
Mon Apr 16, 11:45:00 AM:
I have friends (a married couple) who owned a small business. They worked 12-14 hour days six or seven days a week. They were competing with much larger stores. They could not compete on price but could give better service. They had a mostly cash business. They skimmed, not reporting all their earnings to the IRS. They told me that if they didn't skim, they would have to go out of business. Eventually, they sold their business. The new owner went bankrupt in about six months.
My friends were just criminals in the eyes of the IRS– tax cheats. Yet, in every other respect, they were an asset to the community, employing others, providing a valuable service to their customers, and paying local business taxes and fees.
Hang 'em high?
By , at
Mon Apr 16, 12:08:00 PM:
I'm sure I could contact some lovely story about why I shouldn't have to obey the tax laws either. Hang 'em high!
By , at
Mon Apr 16, 12:09:00 PM:
Sorry, "contact" should be "concoct."
By , at
Mon Apr 16, 02:06:00 PM:
Hell yes, hang 'em high.
Taxation is a bummer and no one likes to pay. But allowing or condoning cheating because they're "small businessmen" or farmers who shoulder the proverbial yoke like they're in Grapes of Wrath is a baloney. Everyone should pay.
The tax code should be vigorously enforced. Cheaters should pay a big price when they're busted.
By , at
Mon Apr 16, 02:07:00 PM:
As a small business owner, I took particular interest in this blog posting. I have a few comments:
First, have you ever started a small business? The only easy thing is failure. I made about fifteen grand last year, my first year. If I hadn't lived for free with a relative, my business would have been stillborn.
Second, the tax and regulatory system can be difficult to figure out. This can be very frustrating. I don't have the fancy attorneys that big businesses have.
Third, I basically work all the time (except for my guilty pleasure of reading select blogs). I know a lot of salaried people who work part time at full time jobs.
Fourth, if my little ship sinks, nobody is going to come to my rescue. Large companies damn well know how to maximize their deductions. Moreover, they're the recipients of government largesse and government bailouts. Tell me how much money that adds up to.
By , at
Mon Apr 16, 02:13:00 PM:
Then let's have tax credits for small businesses. I just don't like self-help tax credits, whether the theory is reparations or how hard it is to take money as a small business.
By , at
Mon Apr 16, 04:22:00 PM:
"Raising their actual taxes, even if they owe them anyway, will adversely affect their marginal propensity to hire new employees."
So, in other words, either we let small business cheat on their taxes, with the effect of the honest taxpayer paying for the "job creation", or we hold them to task and let them fail if they don't know how to run a business, haven't achieved enough economy of scale to operate, or whatever?
As to Anonymous' post rationalizing being a tax cheat, ha! I hope the IRS finds you.
By , at
Tue Apr 17, 02:28:00 AM:
Since it's by definition impossible to know how much you don't have, or in other words prove a negative, the IRS estimate of unpaid taxes is nothing more than a Wild Ass Guess. An extremely self-interested Wild Ass Guess, so we shouldn't trust it. Moreover, basing tax enforcement policy on WAGs is unsound.
It also doesn't comport with what paid tax preparers tell me, which is that taxpayers consistently overpay because they're afraid of the IRS.
I should point out I'm in the real estate business, where everything is paid by certified check or wire transfer. Misreporting one's income is essentially impossible under those circumstances.
By , at
Wed Apr 18, 07:11:00 AM:
I'm an accountant, and I believe people overpay, or more appropriately, over-withhold, due to the tax tables. You have to figure in deductions and stuff to estimate what you should pay. If you don't, you lend our Uncle money that you get back in the return.
The issue here isn't whether people over-withhold, it's the total tax paid at the end of the day. The system is set-up so that those who've worked to achieve a high income support those who have not. We underwrite their children, we pay for our government's reckless spending, social programs, and the true costs of illegal immigration.
Now, you'll argue that the personal income tax isn't a large percentage of the total revenue of the government, but my effective federal rate is always over 25%, and I think it's too damn much. when you add in my taxes to the state, FICA, smokes, drinks, property, tolls, sales tax, etc. it starts to total some real money.
