Tuesday, April 17, 2007

Does Inequality Cause Tax Cheating?

In spite of the Post’s efforts, this seems dubious. Of course, I would expect that the IRS defines cheating as “didn’t pay as much as we wanted you to”, so I suspect that anyone with a shekel left after April 15th (17th this year) is viewed as a tax cheat by a sizeable chunk of the government.

It could easily turn out to be the case that an overly complicated tax code, with congress stuffing in all kinds of loopholes for connected lobbyists, might have something to do with this as well.

Interestingly, the poor don’t pay much in the way of income taxes. That’s what happens when you don’t have any income. (This isn’t to say that the working poor don’t get sufficiently whacked with FICA, sales, and other taxes. )

Everyone has motivation to cheat on their taxes. Greed is a pretty natural thing. For poor folk, cash payments from day labor jobs, tip income, loose cash transactions could all add up to a significant sum. For the middle class, there’s still the issue of tip income, EBAY sales, etc. The farther up the wealth scale you go, the greyer the tax rules, the more loopholes, and the ability of professional tax advisors to find ways to reduce your burden.

One strongly suspects that most of the truly wealthy make use of professional tax advisors. They may be very aggressive about managing their taxes, but the pros are not likely to recommend anything clearly illegal.

Of course, much of this could have been cleared up with any one of the half dozen or so proposals to either flatten the income tax or replace it. Without a major expansion of the government’s record keeping and snooping into our economic lives.