Tax evasion and the 1%

“The richest 1% of U.S. households don’t report 21% of their income.”

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According to Common Dreams, a new analysis by IRS researchers and academics published Monday morning estimates that the richest 1% of U.S. households don’t report around 21% of their income, often using complex tax avoidance strategies that allow them to outmaneuver the federal government’s increasingly rare audits of the wealthy.

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, reports The Wall Street Journal

Offshore evasion, evasion on pass-through business income, and other undetected avoidance tactics are how many of these households are not reporting income, claims the paper

“What’s needed, is a broader strategy that involves increased scrutiny of pass-through businesses [and] investments in the comprehensive audits that the IRS does in its global high-wealth program,” says one of the paper’s authors Daniel Reck of the London School of Economics. 

The paper concludes:

We stress that our estimates are likely to be conservative with regard to the overall amount of evasion at the top. From public reporting and anecdotal evidence, it seems likely that there are other specific forms of tax evasion that have the same properties as those we examine in this paper—sophistication and concentration among high income/wealth individuals.

“We know our tax system is broken, and it’s long past time we start fixing it. The ultra-wealthy play by different rules than the rest of us,” says Rep. Ro Khanna (D-Calif.) Who recently introduced legislation that would help crackdown on tax evasion by the super rich.

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