Looks Like Rich People Owe Us Some Money

A new study says the one percent 'fail to report 21 percent' of their income.

NIneteenth century populist reformer Mary Lease, often called "The People's Joan of Arc," once said, "You may call me an anarchist, a socialist, or a communist, I care not, but I hold to the theory that if one man has not enough to eat three times a day and another man has $25,000,000, that last man has something that belongs to the first."

I have always loved this quote, for the way it just perfectly sums up something we can all feel in our bones is just wrong . Or at least some of us can. And it's correct, in an indirect way, because if we have people with that much money while others have none, it means more than a few people aren't getting paid enough, and if they're not getting paid enough, they're not spending as much as they might otherwise, which slows down the economy, which means fewer people get hired and fewer people have money. Also, as a committed social floater who hates clubs and labels, I appreciate the "no one has to join a club to see that this is wrong, and you're not going to scare me out of thinking this is wrong by slapping a label on me that you think is scary" sentiment.

It's also, apparently, correct in a completely direct way. A recent study conducted by a group of IRS researchers and academics has found that the one percent are not paying at least 21 percent of their taxes — significantly more than the Internal Revenue Service had previously assumed — and that they are responsible for about 36 percent of all unpaid taxes.

Whoa if true.

Via Wall Street Journal:  

Overall, the paper estimates that the top 1% of households fail to report about 21% of their income, with 6 percentage points of that due to sophisticated strategies that random audits don't detect. For the top 0.1%, unreported income may be nearly twice as large as conventional IRS methodologies would suggest, the researchers wrote.

These strategies include offshore tax avoidance, which may have waned after stricter reporting requirements took effect about a decade ago. But many high-income Americans also use partnerships and similar entities to avoid taxes, and such behavior may be increasing and becoming harder for tax authorities to find and untangle, said Daniel Reck of the London School of Economics, the paper's lead nongovernment author.

Such pass-through businesses—where income passes directly onto their owners' individual tax returns and isn't taxed at the corporate level—are a large and increasingly important part of the wealth of the top 1%, particularly the top 0.1%. Investment funds, real-estate businesses and closely held family firms across industries are often structured as partnerships. Partnerships themselves are, of course, legal to use, but the IRS has struggled to find tax dodging inside webs of connected entities.

Basically what this means is that if a normal middle-class person gets audited and is trying to do some kind of regular tax evasion, the IRS is going to be able to figure that out pretty easily. But rich people, who can afford to pay "financial advisers" and what have you, are a little more creative, and they end up evading taxes in a way the IRS is not prepared to detect.

The IRS itself is aware of the issue. IRS Commissioner Charles Rettig brought it up when asking for more money last week, explaining that they didn't just need more agents, they need specialized agents who are better able to detect this kind of tax evasion.

"It is not just a body count of how many people we have in enforcement," Mr. Rettig said, contending that each additional dollar spent on tax enforcement could yield $5 to $7 in revenue. "We need to have specialized agents."

It's really not just an issue of things not being fair or rich people getting away with something and that feeling unfair. We actually need that revenue. That's not their money, it's our money and we need it to fund the COVID relief bills, for education, for the environment and for other things to make our country more livable and nice for everyone .

I get that some may grimace at the idea that it's "our" money, but the fact is, absolutely none of these billionaires would have a golden pot to piss in if it wasn't for the rest of us. We are what makes it possible for them to be billionaires. Not just because it would be awfully hard to have a business without any customers, but because it would be difficult to have one without roads that we pay to keep up, employees that we paid to educate (and are now paying to vaccinate), etc.

And, unlike the one percent, we actually have to pay all of our taxes because the IRS will come after us if we don't.

[ Wall Street Journal / Tax Evasion at the Top of Income Distribution: Theory and Evidence ]

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