One of the US readers of this blog, Kenneth Thomas, who writes the Middle Class Political Economist blog, wrote the following and I reproduce it with his permission as it is very apposite here:
As I reported last month, the Tax Justice Network estimated that global tax evasion was over $3 trillion annually. TJN's estimate for the U.S. was $337 billion for 2010, less than the IRS figure of $385 billion for 2006 even though GDP was higher in 2010 than 2006. Thus, the IRS figures confirm the validity of the TJN estimates. Indeed, it is quite possible that Richard Murphy's estimate in the TJN report actually understates the amount of tax evasion globally.
There are a number of eye-popping numbers in the IRS report, beyond simply the magnitude of tax evasion. Most evasion takes the form of underreporting and underpayment, not non-filing. The amount of dollars lost to underreporting rose by 32% between 2001 and 2006; one-third of that increase came in the corporate income tax.As another sign of growing inequality in the U.S., between 2001 and 2006 corporate income tax due doubled (meaning that profits approximately doubled), while individual income only rose by 15%.
Not surprising, but still striking, is what the report says about who cheats on their taxes. People subject to both information and withholding requirements only underreport 1% of their income; people or businesses subject to information reporting but not withholding misreport 8%, but entities subject to neither information or reporting requirement, "such as business income" [on the individual, not corporate, income tax] has a 56% misreporting ratio. Since middle class taxpayers mainly fall in the first group, it is obvious that most of the opportunities for cheating belong to the wealthy.
To put this in dollar terms, of the $450 billion gross tax gap, $376 billion of it comes from underreporting income. $235 billion is on individual income tax, of which $122 billion is business income (in addition, there is another $57 billion in self-employment tax that is underreported). Finally, $67 billion of corporate income tax due was underreported. (And this is only illegal tax evasion. Abusive corporate tax avoidance, some of which will be declared illegal retroactively, would add many billions more.)
What rich individuals and corporations don't pay in taxes, shows up as higher taxes on the middle class, bigger budget deficits, program cuts, or some combination of the three. 2006's $385 billion in net evasion of federal taxes would cover about 1/4 of the FY 2011 budget deficit (and, as Policy Shop notes, it exceeded the $248 billion budget deficit of 2006). As Policy Shop says, the case for giving the IRS further resources for enforcement is a strong one, but Republicans in Congress are actually trying to reduce enforcement resources.
That opposition needs to be overcome.
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Yes, I have always thought TJN were on the right road here. In my opinion the Tax Gap should be assessed by an Independent body, HM Revenue & Customs should not be allowed to set their own targets. And to strip a revenue raising body of resources is just plain daft. I don’t go along with the view that raising more revenue will obviate the need for Government spending cuts, I know from experience it’s not that easy to tax people more,
even police states have trouble- but it would sure help.
There is a callous irony in the fact that, despite tax bands, many who earn the least contribute proportionally more income tax to the exchequer than prosperous and powerful tax tricksters.
The irony continues in the knowledge that the fortunes of many trickster are dependent on the UK’s economic and social infrastructure (roads, health, police) that are provided, via government, by the honest tax payer. But in the selfish world of tax trickster the good of the community and economic future of the country is secondary to accumulating wealth at the expense of the vast majority of their fellow citizens.
The trickster’s activities, often centred on the Crown Dependencies via the City, support a phoney economy which employs thousands of smart arse bankers, lawyers, and accountants charged with designing ever more complicated structures to defraud the HMRC. The isles of Jersey, Guernsey and Man should be rechristened the Tax Dodgers Dependencies.
Then more irony is provided by the OECD and its absurd Tax Information Exchange Agreements (TIEAs) which supposedly provide for exchange of information on request relating to criminal or civil tax investigation but in reality can be exploited by any smart arse chimpanzee. Instead of discouraging tax tricksters the numerous loopholes in these “agreements” provide the “governments” of Tax Dodgers Dependencies with a powerful propaganda tool to reinforce their self righteous and hypocritical claims that they are transparent and honest.
The real irony is that few people involved in the tax trickster industry show any shame.