Conventional wisdom is that if one can fund the IRS with one extra dollar, and they use that dollar to collect two dollars more taxes (from evaders), than that was a good way to spend taxpayers money.

Many economists don't agree though. If you care about economic success of the country, the goal isn't 'collect as many taxes as possible'. The goal is to make the citizens wealthier in real terms.

Effort your citizens put into tax collection is 'dead weight', and doesn't contribute to exports etc. However, effort your citizens put into trade that (for various reasons) ends up under-taxed, usually does add to the economic wellbeing of citizens.

Therefore, it's only necessary to collect mostly-correct taxes from most citizens, if doing so let's you redirect labour from tax collection into other work.

Is it unfair? Yes. But it's still good economic policy.

> If you care about economic success of the country, the goal isn't 'collect as many taxes as possible'. The goal is to make the citizens wealthier in real terms.

But the goal of taxation isn't to maximize the country's economic success or overall wealth.

It's to fund necessary government services (schools, courts, police, military, etc.) and to redistribute wealth (Social Security, Medicare, Medicaid, etc.).

We only want to maximize national wealth after we've funded government services fully and redistributed wealth (and sufficiently protect the environment, protect workers, etc.).

So if funding the IRS gets you back more money, that's always good, because it's by definition going to the things that we have democratically decided are a higher priority than maximizing national wealth. And if we democratically decide that we're spending too much on services or redistributing too much, then we cut those intentionally -- not "accidentally" by underfunding the IRS.

Even if under-collecting taxes is good economic policy by the extremely narrow measure of GDP, it's terrible national policy. It's like saying that accidentally redirecting an extra $500 per person to the military is good military policy. I mean, sure it might be. But that doesn't mean it's good national policy.

>We only want to maximize national wealth after we've funded government services fully and redistributed wealth

There's a chicken or the egg issue here. If your country isn't rich enough to fund government services such as education, transport and healthcare you need some economic development first.

Except we are vastly more wealthy than needed to provide these services. Wealth inequality is so laughably bad that a tax on just a handful of mega rich billionaires could cover the cost of many important social services.

Are you sure? Have you ever tried to balance the federal budget?

You need to ask yourself how the tax evader uses their $2, and how the government uses their $1. And you need to ask yourself about the perceived rule of law, and how many more tax evaders you would create by letting it be known that it is easy to get away with tax evasion. And you need to ask yourself if you want tax evaders to have a leg up on investments compared to full-tax-payers.

> If you care about economic success of the country, the goal isn't 'collect as many taxes as possible'. The goal is to make the citizens wealthier in real terms.

Just like how "collect as many taxes as possible" isn't actually a good goal, just "make the citizens wealthier" isn't actually a good goal either because it says nothing about the distribution of that wealth.

If we enacted a law that made 99.9% of all citizens absolutely destitute to the point where they must eat rotten food found in the trash to survive, but this law also multiplied the wealth of Bezos and Elon a millionfold, then that would successfully "make the citizens wealthier" in sum.

Taxes are used to run society, from it's roads, fire department, education, social services, and much more. A lot of people are pushing to cut down on those things, to decrease the bounty that society offers regular people who partake, because "we just can't afford it." and the reason we can't afford it is because there is an overly focus on "make the citizens wealthier" even at the cost of most citizens.

> Taxes are used to run society, from it's roads, fire department, education, social services, and much more

The "much more" is much, much, much more than anyone thinks. The federal budget is tremendous. People cannot conceive of trillions, yet the federal government alone spent over six of it a year, three years in a row.

Virtually nobody has a problem with tax funds being used to build roads and bridges, fire departments, and whatnot. It's everything else that's contentious. Public schools are visibly wasteful, with the number of students and teachers overall remaining largely constant, but the number of administrators having increased many-fold in the past decades; at this point it's a jobs scheme for adults, not an education scheme for children. Nonprofits received hundreds of millions of taxpayer dollars to support illegal immigration. Et cetera.

So many things in the federal budget appeal to a fringe minority of advocates, yet the money hose continues to flow. This is not the way that a federal government with clearly delineated limits should work. Something is wrong.

> It's everything else that's contentious.

In part, because of comments using wording like "hundreds of millions of taxpayer dollars" as if it were huge, when it describes a pretty miniscule part of the 6,000,000 millions in the budget. (It also misses those same immigrants paying billions in sales and other taxes here, including quite a bit of Medicare/Social Security funding they'll never get back.)

As a result, Americans have a massively skewed idea of where it all goes; they think NASA gets 6.4% of the budget when it gets 0.5%, for example. https://www.businessinsider.com/nasa-budget-estimates-opinio...

Defense, healthcare, and social security make up the vast majority of Federal expenses. Education is, comparatively, a pittance; nonprofits serving immigrants don't even show up on the chart as a full pixel.

https://commons.wikimedia.org/wiki/File:2023_US_Federal_Mand...

https://commons.wikimedia.org/wiki/File:2023_US_Federal_Disc...

Most public education funding at the K-12 level is from state and local taxes.

Yeah, to be more specific:

> The federal government provides 10.5% of funding for public K-12 education.

https://educationdata.org/public-education-spending-statisti...

Very easy to draw extremely wrong conclusions from this line of thought without factoring in the long-term cost of declining trust in the rule of law.

Only if you're under the false premise of the people serving the government rather than the government serves the people.

I have no idea what connection you’re drawing there.

What is the confusion? You're the one bringing up "rule of law" as if I live to be the government's personal slave along with millions of others.

The confusion is that that doesn’t follow, at all.

[edit] it occurs to me that this is a term of art you may be unfamiliar with, so reading it in an unusual sense:

https://en.m.wikipedia.org/wiki/Rule_of_law

Basically, it’s a super-important thing to have if you want to live in a “developed” country that doesn’t have all kinds of very-bad problems, and isn’t some proxy for level-of-authoritarianism, which is how it seems you’ve read it. It’s about actual and perceived equal treatment under and efficacy of the law, not how much law (if you will) you have. A minarchist libertarian state would sensibly seek to have high rule-of-law, for instance.

I'm not confused at all about the concept. Your stance is incomplete. "Rule of law" does not stand alone either, you've also mixed in a few concepts that frankly do not apply, but we'll ignore that for now.

"Rule of law" requires government (and it's officers) be above all, both in practice and in theory. Just on the basis of who can violate rights, perceived or otherwise, and who in turn pays for the consequences, it fails in the test of "equality". And in reality, it's enshrined in multiple jurisdictions varying levels of immunity.

Even if you think tax money, once assessed and collected, belongs to the government.

Ah—you know the sense in which it was intended but, unusually (I intend this descriptively, not pejoratively), reject its definition as self-contradictory. That, I was not expecting.

I don’t think we’re gonna bridge that gap productively in a comment section. Have a nice weekend (sincerely).

That's not what the phrase "Rule of law" means.

No matter what society you live in, you will have to obey rules. There has never been a society where this is not the case, and there never will be one.

You can call that slavery if you want.

You have to breath in mere seconds after you breath out, this action must continue until your bodily functions completely fail or otherwise.

Economics is not divorced from ethics. Fairness matters. If people think the system is rigged they won't participate, or they will try to find their own way to exploit the system.

it is not good policy to reward people who break the law to the detriment of people who abide by the law. if tax fraud occurred less, it would give us latitude to lower taxes which would give the broad based economic improvement you are discussing.

> Effort your citizens put into tax collection is 'dead weight', and doesn't contribute to exports etc.

Hot take: a lot of tax revenue does contribute to exports etc. The government is spending a lot of money re-digging that shipping channel in Baltimore after the bridge collapsed. Just one recent example, but pretty much every bridge and port and road in the world has a lot to do with taxes.

The government is also spending lots of money on social programs people like too much for even the Republicans to try to repeal, yet the government is not taxing enough to cover them. Letting rules slide for certain people means more debt for everyone else, and is what a lot of economists would call "arbitrary redistribution", which is bad.

I was referring to the effort of collecting taxes themselves - ie. The salaries of all the IRS workers who have to chase everyone up.

It's good economic policy based on what? Did you run a counterfactual already? Comparing the US to other countries is meaningless, it's not the same set of init conditions and variables.

Do you realize that those taxes go to fund public services and help people stay afloat, which I don't need a study to show you, creates far more customers for all these tax evaders in the first place? Go back 50 years to see what this country used to be and how much shit it got done and compare it to today. There are measures of productivity engineered in math, and then there is common sense: majority of existing infrastructure was built decades ago and now it costs billions in overrun projects to build a single station in NYC.

The current system works just fine in terms of punishingly taxing everyone on this website and the poor, that's why it feels like I'm contributing half of my salary to the federal government. What it doesn't do is take its share from extremely wealthy, who in turn DO NOT SERVE the economy because they're effectively stateless agents, who can put their money into Seychelles or whatever. Nobody would bat an eye if those billionaires would contribute the billions to the economy. Instead you get people crying about how "the government is inefficient, it gets nothing done, I'd rather the titan spend it as they see fit." But if this ship called United States floods they will be the first to abandon it, just like a famous critter.

I'm sorry but posts like this are the exact definition of bootlicking.

I would like to see the citations on this asinine idea.

Nobody needs a first principles argument to justify greed and tax evasion. It just feels right.

I think you are only looking at a point in time and not considering the impact of incentives over time.

One good way of measuring economic success is by ignoring the income and wealth of the top 10%. The exact percentage is not important. What matters is the idea that the success of the well-off only benefits the society to the extent it improves the lives of ordinary people.

Many government activities make sense from that perspective. By redistributing money from the top 10% to the bottom 90%, they increase the economic success of the country, though possibly at the expense of economic output.

And fairness is also important, because societies are built on trust. When people don't trust government institutions and each other, everything starts falling apart.

The problem with the conventional wisdom is taxes don't fund government services. Fairness is a real asset. Deciding how to weight fairness as an asset against computers and food is political.

> Where are crimes more likely to occur, a city with 10,000 or 1 million?

A city of 10,000 may very well have a higher rate of crime. In terms of your analogy, consider my lawn man, who only takes cash for his services. I know he's not taking in millions of dollars a year (or even hundreds of thousands), but I also strongly suspect that he does not report all of his income.

Same goes for every cash-only business I know.

> I rather have a well staff IRS going after those that evade paying their taxes, probability speaking the wealthy.

I'd rather the tax code be simplified so that nobody has access to loopholes, not just the wealthy. Not much you can do to hide, for example, a land value tax.

> Not much you can do to hide, for example, a land value tax.

Unfortunately I’m not sure this is entirely true: https://www.nytimes.com/2021/04/03/opinion/sunday/property-t...

I mean a Georgist land value tax, where you are only taxed on the value of the land underneath any improvements, and not on the improvements themselves. Of course, that doesn't prevent the kind of valuation mistakes that your article points out, but they are orthogonal.

I keep hearing that its mostly the wealthy who evade tax, but I don't understand it. Service workers love being tipped in cash because its easy to not report. OTOH the wealthy have more to lose if they're caught, and can afford to pay their taxes and accountants.

Even if that's true, the number of dollars being evaded is substantially lower. Not reporting $2000 a year in tips isn't exactly going to have the same effect of a billionaire not reporting $100,000,000 of their income.

There are plenty of legal ways to evade (or at least not pay) taxes as well, though. An easy way, for example, is to store wealth in the form of stock; generally you don't pay taxes until you sell, so increased value is ignored until then, but once you have that many assets you can borrow money using the stock as collateral, and in some cases I believe you can even write off the interest. All of this is perfectly legal, and I'm not sure if it can or should be "fixed", but a lot of cash that might otherwise be taxed simply isn't.

For that matter, they could also buy a piece of art for a million dollars, a year later get it appraised as worth $40 million, donate it, and then write off $39 million. Again, as far as I know this isn't strictly illegal, but it can be used to evade taxes.

> For that matter, they could also buy a piece of art for a million dollars, a year later get it appraised as worth $40 million, donate it, and then write off $39 million. Again, as far as I know this isn't strictly illegal, but it can be used to evade taxes.

This is so wrong it hurts my brain. The IRS requires using a qualified appraiser, and none of them will suddenly appraise an artwork for 40x its last sold value. The IRS aren't fools-- they'll quickly clamp down on such an anomaly.

Even if this amateur scheme were true, the individual wouldn't write off $39 million. They'll deduct the tax rate (%) of $39 million.

I doubt every "qualified appraiser" is above being bribed.

I thought it was implied that writing off $39 million didn't mean a $39 million dollar reduction in taxes.

Merely a ~20 million reduction, nothing to sneeze at.

Isn't this one of the reasons why most very expensive art pieces are sold in auctions? The auction acts as a qualified appraiser because of price discovery via competition makes the price very real (after all, what is price but supply and demand?)

Although I guess there is nothing stopping Soteby's from setting the base price absurdly high to begin with . . .

not sure how you keep hearing this, the IRS is very clear that lower income filers commit much more tax fraud which is why they focus audits on filers in this income bracket because it generates the best returns

I do wonder if part of this is because lower-income people don't have the legal resources to fight this though. If a billionaire hides their wealth in an illegal way and they're caught, they'll hire a bunch of lawyers and fight against, potentially dragging a court case out for years, and costing the taxpayers millions of dollars.

There is not much 'getting caught' happening.

It's all layers of legalized scams. Business expenses, mortgage interests on investment properties, technically charitable donations, massive tax exempt funds, etc. And all these interacting in creative ways.

I think this has been studied and low-to-medium income filers are more likely to actually commit tax fraud so you get better returns as the IRS by focusing on these filers

This is contrary to every article I've seen on the subject.

Are you perhaps thinking of when IRS said they couldn't afford to go after wealth tax evaders because they were underfunded?

probably because high-wealth individuals have a lot more wealth preservation instruments available to them and paying a $300/hr to professionals that help them navigate these tax reduction techniques makes very little sense when youre income is less than $100k

Heard mostly it's the opposite:

By mapping audit costs and returns across the income spectrum, he continued, “We saw very clear evidence that the return from audits at the top of the income distribution really exceeded by quite a bit the returns at the bottom of the income distribution.” With the top 10 percent of earners, they found, audits have the potential to return more than $12 for each $1 spent.

https://www.news.harvard.edu/gazette/story/2023/07/turns-out...

thank you for sharing! i'm having trouble finding it but the explanation i gave i believe was one given by the IRS commissioner in some hearing which i took at face value, but this seems like a much more thorough analysis

That's exactly it. The earned income tax credit (EITC) is a direct transfer of money from the government to tax payers that only low income households are eligible for.

Most of the low income audits are related to the EITC, because people tend to fudge checking a box to get more money.

"I would argue that having to file taxes through a 3rd party accountant or service is not only forced commerce but also broken glass economics"

Where are people being forced to use a 3rd party? My understanding is that direct file is optional, hiring someone is optional, and using tax software is optional. Isn't it still possible to file with paper on your own?

Anyone with company stock grants, investments, or unusual scenarios is going to find it difficult to file their tax correctly without an accountant or software. The US tax code is too complex for a regular person.

I personally used TurboTax the first few years I had RSU and ESPP income to report (and ran the end result by an accountant) but eventually switched to filling out the forms manually because I found it easier than entering the same information into TurboTax. Tax prep software is great for when your taxable circumstances change and you don't even know which forms you need to fill out, but I didn't find that it let me skip understanding the relevant parts of the tax code and I got to the point where I was having to generate preview pdfs look over exactly what it was generating to make sure I'd entered numbers into the correct spot in the software.

I choose to use software to make it easy. I don't feel like it's being forced since I could use paper if I wanted to. Indo understand that the tax prep lobby generally doesn't want simpler taxes or simpler filing, but it still feels way less coercive than many other areas of legal life.

Filing a DIY tax return with investments is intimidating at first, but it's really not hard once you've done it the first time. Assuming you're not doing any esoteric cost basis adjustments, it's just a matter of knowing where to copy the numbers from your consolidated 1099. Interest and dividends go right onto your 1040. Realized capital gains go on Schedule D. If you hold any foreign stock, claim your foreign tax credit on Schedule 3. Investments in IRAs, HSAs, and 401(k) accounts are, of course, not reported at all.

Depends, some states (hello, California!) tax your HSA gains.

Not only is it still possible to paper file, almost half of taxpayers still paper-file their returns, and a lot of them filled out the returns manually (by hand) on a paper copy of the return.

Of course that's precisely why "people" (Republicans) want to defund the IRS.

Note that it's also totally incompatible with their idea that the government should be run more like a business... so you're going to strangle the one part of it that actually generates revenue?

Who steals more? 10,000 people evading 100k or 1million people evading 1k?

Rich tax evaders are evading way more than 100k

Since I cannot respond to everyone that broke of this binary tree and I take you for the view points.

Let say you won the lottery, now you can buy that dream house. Do you get a mortgage or pay off the sum in the cash on hand so you are not losing moneys in interest payments? Why waste money on interest and save in the long run? Which is it, take a mortgage or pay interest?

Take the mortgage and the tax deduction. First open a trust or a shell company. Move $1,000,000 into it to back the house purchase as Lender X. Take a loan against Lender X, which is yourself. Now on the tax deduction, state the amount of interest you paid to yourself as mortgage interest on your house, since you could / didn't pay in cash. Use this to place yourself into a lower tax bracket and put some of those tax dollars into your account. Creative account is legal and can be exploited by the rich. Even more when you use money to maximize the legal loop holes by paying others to find and construct other legal loop holes.

Now try to remove that tax loop hole. Near impossible, this would remove that the tax loop hole that allows others not paying a mortgage to themselves, but to a Lender Y, a actual bank or credit union. This tax deduction is near impossible to remove because it cuts out the middle class and poor ability to buy a house.

Where is crime most likely to happen, in a city of 10,000 (A) or 1 million (B)? 10,000 is 1/100 of 1 million. Now where would you bet single (1) crime will happen, city A or B? City B 100 times more people to commit a crime than city A. Lets rephrase, you have the ability to take 10,000 (A) lottery different lottery tickets or 1 million (B) lottery tickets? Which would you take tickets A or B to maximize your winnings?

Cash based business that don't declare income in hospitality industry as tips. How many of those individuals make 10,000 or 1 million a year? How many people tip in cash versus in credit or debit card? More people have been using credit cards to make purchases versus paying in cash. When was the last time you payed in cash or be a party member in a pure cash based transaction in a restaurant? How many people use their company business credit card to pay for corporate deduction dinners and how many pay in cash?

How do you plug this legal loop hole that places more tax dollars into a rich person's hands? Start by shifting money into a trust or shell company. Pay an artist $5,000 to create a new piece as Company X. Company X now auctions off the art. You, as the hidden supporter of company X, buy the art, and pay yourself at auction, for $50,000. Now you donate that art to a museum or other non-profit that fits the tax deduction bill. I just donated $50,000 because I made the declaration that $5,000 is actually $50,000 as proven by my auction bill, secretly paid to myself.

Lets deploy a use tax. A person that drives more should be paying more for the road, repairs and maintenance. How much do you use your vehicle for person versus business? How much of your driving is just to get to work and back home, or driving from work to lunch and back to work? I'm using my car 80% for work driving to and home, and only 20% for personal. My use tax should be 20% of what I own, my employer should be paying 80% of the usage because it is being used to benefit them, but since I am the owner of the vehicle I pay 100% of the use tax. Now I am being taxed 80% to be employed.