Tax Evasion Costs Over $300 Billion Each Year

Think tax evasion is a small problem? The Tax Justice Network released a report in November 2011 that showed that in the U.S., tax evasion amounts to $337.3 billion a year.

This was based on numbers from 1999 to 2006, and could be even higher in recent years as the weak economy may have led more people to hide money from the government. For example, the average tax refund decreased by $100 in 2011, maybe people are reporting less income in order to keep more of their money.

It’s hard to wrap my head around how much money that is. Congress was recently unable to agree on a plan to reduce the national deficit by $1 trillion over 10 years. Over the same time period, tax evasion will cost us well over $3.3 trillion.

I’m a big proponent of everyone following the tax rules. When we don’t, it means that everyone else has to pick up the slack. Because of this fraud, tax rates are likely higher and future generations will be paying for current expenses.

The IRS is Catching More Tax Evaders

The good news is that the IRS is doing a better job of catching people who aren’t paying their fair share of taxes.

Fraud investigations increased by 14% in 2010, while prosecution recommendations (cases that the IRS thinks should be brought to court) increased 18% and convictions increased by 4%.

Again, it’s possible that some of these increases are due to the economic situation of the past few years, but the fact that the IRS decreased its investigation time by nearly 40 days is another good sign that the IRS is doing a better job.

Don’t Give In To The Pressure

It’s really easy to hide money from the IRS. After I sold my HP TouchPad for $100 profit, it would be really hard for the IRS to track down how much I paid, how much I sold it for on eBay, and how much of a profit I made. So I could hide that pretty easily. But I’m not. I know that people don’t admit to cheating on their taxes, but the fact is that it happens. Stay true, and help reduce that $337 billion number so that future generations are stuck having to pay it!

6 Responses to Tax Evasion Costs Over $300 Billion Each Year

  1. Think about what the cost becomes when you factor in the investigative process, labor, prosecution, and imprisonment into the equation.

    There is a fine line between tax avoidance, which is totally legal (accomplished through deductions and deferrals) and tax avoidance which is never legal (failing to report income or not paying on what is reported).

  2. Murray Rothbard says:

    Your argument is only sound if governmental taxation of income has been legalized by our US Constitution. In fact, it has not. Our US Constitution never stated or implied that our government had the right to tax our income. Most people do not know this and therefore passively allow the IRS and our government to impose draconian, punitive measures to maintain the deception and feed their insatiable hunger for free money. Given this reality, people who are able to side-step paying – and in most cases, over paying – taxes are actually on the right side of the law. We all pay enough taxes, and this does not even take into consideration the insidious tax imposed on us by collusive relationship between our government and the Federal Reserve Bank that floods our money pool with billions of phony dollars that systematically water down our dollar’s spending power each year.

  3. J Ascher says:

    I largely agree with Eric above. I think he means he approves of legally minimizing one’s tax burden, but not avoiding taxes.

    The IRS’ investigations and investigators can only be effective if Congress adequately funds the agency or otherwise gives it directives to act one way or another, regardless of any potential negative effects on the country such as discouraging audits of well-heeled people or organizations.

  4. That’s exactly what I’m eluding to.

  5. Dan says:

    The first thing I though of when I saw this was the following: imagine you own a small company and you made $1M BUT you lost $1M in personal investments. So you made nothing. But because of the way the tax code works you owe nothing for the losses but (roughly) half of what your business made. So you made zero but owe $1/2M.

    I’m not saying there aren’t tax dodgers out there, just that some people have legit reasons why they can’t pay because of the way the gov buckets different types of income.

  6. Geoff says:

    I heard you can make some pretty hefty commissions (like 250k) for turning in tax dodgers that are hiding more than million or so from the IRS…..could be an interesting business model :).