America’s 1% widens tax gap to $600 billion

in October 18th, 2021

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Just days before Alexandria Ocasio-Cortez’s controversial “tax the rich” dress, the U.S. Department of Treasury revealed how America’s top 1% are able to dodge $163 billion in annual taxes. As a reference, that lost revenue is more than the entire CARES Act, a $150 billion fund for COVID relief in 2020 and 2021.

How are they getting away with it? An IRS analysis we shared in March points to a multitude of contributing factors.

  • First, sophisticated schemes by the wealthy. This includes using offshore tax havens and pass-through businesses, a tactic where income passes directly to the business owner’s individual tax returns rather than corporate.
  • Second, the IRS’s outdated detection technology. On top of only being able to catch a mere 7% of offshore accounts, nearly a third of the unreported revenue is through sophisticated schemes that random IRS audits fail to detect.
  • Third, a shift in who is even audited. Because of heavy budget cuts and the high cost of auditing the complex tax returns of the wealthy, audit coverage is now heaviest in low-income, majority Black counties.
  • And finally, less focus on corporations. On top of corporations being granted giant tax cuts under the last presidency, only three of the largest 755 corporations were even audited in 2020. In fact, corporate income taxes were not even twice the missed revenue of $163 billion.

All that said, Biden’s administration wants to fight tax evasion through an $80 billion boost to IRS funding over a decade. Estimates show this would yield $200 billion in new revenue, and while lower than what the administration anticipated, still demonstrated the significant potential of arming the IRS with the funds needed to better detect and catch tax evasions.

Ultimately, America's tax evasion problem is due to its infamously complex tax code. Federal tax rules span almost 75,000 pages. Fully understanding the tax penalties or credits associated just with the Affordable Care Act requires over 100 pages of reading. The wealthy have the benefit of hiring expert tax practitioners familiar with the extensive content involved across every federal regulation and tracking the many annual changes.

🎬 Take Action

There’s a lot of opposition to taxing the rich. If you’re interested in learning more about what this even means and why it’s being asked, consider this resource from Americans for Tax Fairness.

Resource Center:

  • CNBC (Where we found this story) 5 weeks old | 5 minutes long
  • Salon March IRS analysis 6 months old  | 8 minutes long
  • Wall Street Journal
  • Biden’s $80B IRS Boost 1 month old | 3 minutes long
  • Wall Street Journal How high income earners avoid taxes 6 months old | 6 minutes long
  • Newsweek AOC’s MET dress 1 month old | 5 minutes long
  • Time Complex U.S. tax code 5 years old | 7 minutes long
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Dealing with America's tax code is pretty taxing.

Art Credit: ASCII Art Archive

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