The public underestimates the huge efforts that have been accomplished to prevent tax evasion in the last few years.
FATCA forces all signatories to report US tax payer info to the IRS no matter the country in which they have a bank account.
CRS signatories do the same thing for pretty much every country in the world and automatically exchange bank account information with the tax office of one's country of residence.
Pretty much every offshore center requires identification of the UBO - Ultimate Beneficial Owner - of any tax structure in place.
It's so so so much harder to open a bank account in a country in which one is not resident because the US has a very long reaching arm and frequently punishes sanctions banks or entire countries for failing to have proper anti-money laundering controls in place. Yes, banks can be fined, not because money laundering took place but just because the regulator decided that the controls in place are not sufficient.
Where does that leave us? On one hand, tax evasion is much harder. On the other, money has become a system of control. The government knows by default who has how much in their bank account. Banks are deputised with government powers and can lock your account merely on suspicion of a fraudulent transaction. When they freeze your funds, they are legally prohibited from telling you why. You essentially don't own your money and there is no due process to have it seized. Developing countries are pretty much excluded from the modern financial system. It's close to impossible to process financial transactions if you're a software developer trying to sell your products but have the misfortune of living in Nigeria or Cuba.
It's a modern aberration that the internet is so free yet the financial system isn't at all but most people in developed countries aren't affected by this so they simply don't care. What's the point of crypto when I can use venmo, right?
It's close to impossible to get a bank account in less reputable offshore jurisdictions which limits their use to holding physical assets or IP etc...
The not so funny part, is that the US isn't a member of CRS to they don't automatically send bank account of foreign citizens to their countries of residence. Major offshore centers aren't always where you expect them to be.
And look at all the support for banning cryptocurrencies we see. The one way to sidestep the insanity of the modern financial system all of a sudden has massive support to shut it down. Arguing that to save poor people from CO2 we must perpetuate financial systems which impoverish them forever.
Wonder how hard it was to get people to fixate on cryptocurrency's energy usage vs youtube's, instagrams, or netflix's?
The idea that crypto would be a boon for the lower classes seems to me to be extremely dubious. Probably my single biggest concern about crypto is how much power it would shift away from governments and into the hands of the wealthy.
> "it would shift [power] away from governments and into the hands of the wealthy"
You repeat yourself. ;) There are certainly risks - 51% attacks, etc. I don't know if crypto is the whole answer or maybe part of it, but when you consider how much the current financial systems are controlled and rigged, it's hard for me to see crypto as not an improvement for the common people.
>The lower classes are the most vulnerable to inflation.
The lower classes spend most of their income and accumulate very little savings and even if they do, those savings will not generate enough returns to replace their job, if the latter were possible they would not be lower classes by definition.
Really there is only one benefit that Bitcoin brings and that is the ability to "strike" and force central banks to set interest rates properly e.g. the threat of competition keeps everyone honest.
Also, Bitcoin is going down very quickly. Considering the recent rise in inflation I wouldn't want to hold onto Bitcoin if my goal was to get ahead of inflation. The volatility completely drowns out inflation. You may have to hold onto your Bitcoin for years and hope for a recovery.
Is that why it is such a huge hit in Venezuela and other high inflation countries? Because poor people are playing into the hands of the powerful and not because it gives them a stable way to store wealth and trade with people in other countries?
Sorry for my tone, but it rubs me raw when people casually discount the plight of the poor with do-gooder polices that make people's lives even harder, all while ignoring actual evidence.
There is this theoretical construct called the world interest rate and it refers to the average real interest rate. Any country whose real interest rate is above the world interest rate will receive capital inflows and any country whose real interest rate is below the world interest rate will have capital outflows.
So the goal is to get as close to the world interest rate as possible or even exceed it slightly.
Therefore if the world interest rate is 2% and you have 8000% inflation per year, the interest rate must be 8002% (oversimplified) so that the real interest rate becomes 2%.
Bitcoin is just another currency and since it is not generating any returns it should closely track the world interest rate like gold does because when you are buying gold or Bitcoin, you are betting that the world economy will continue to exist in the future.
The ability to exchange Venezuelan money is just a way to obtain access to the world interest rate without interference of the government and usually that is a good thing, not because governments shouldn't be trusted with your money, no it's because bad governments can't access it but ultimately you are hoping that your government becomes good again or you move to a different country where the government is less corrupt, because it is a non goal to organize an economy with Bitcoin.
And how exactly will cryptocurrency benefit those impoverished by the current system? As is it stands, the only way to reap any benefits is to become an early investor, or to have the capital on hand to purchase the computing resources necessary to "mine" them.
My company has remote employees in a 3rd world country who prefer to be paid in crypto rather than on their bank account. Resident nationals are prohibited from owning foreign bank accounts. The value of freely convertible currency is 80% overstated by their central bank. If I pay them in the local currency, they lose 45% of the value of their labor to a corrupt government.
At least you get a receipt when you pay your taxes I guess?
One challenge with inflation is how hard it is to measure and how it impacts different parts of the economy differently. If you’re buying chickens, it might be impacting you 20% or 100%, houses the same range but differently, etc. taxes at least are usually published and more knowable/can be planned around.
The notion that these anti-money laundering schemes and otherwise regular financial transactions are 'oppressive' is not only false, it's upside down.
'Poverty' is a system without trust, justice or regulatory oversight - that is a system of 'power by thuggery'.
The reason Singapore and Hong Kong flourished is because they had objective commercial law, you could put your money in a bank and know it wasn't going to be stolen. You could make business claims against others in court, instead of having to hire gunboats.
A rigorous financial system is a foundation of civility, not an oppression.
If we want to 'improve' we can look at remove VISA/MC monopolies, platform monopolies (Apple etc.), and of course reduce fictionalization of the economy by the Fed ...
... but good luck with the later, as those receiving a 'tiny bit of free money' from the government have difficulty realizing that they are actually being duped by the fact that everyone higher than them on the ladder is getting 'even more free money from the government' and that their ostensibly handouts are going to get more than eaten up by inflation of various kinds.
There is no magical solution to our problems, we need to more pragmatic and intelligent - there's nothing in the domain of crypto that's fundamentally going to change the equation other than as minor tool in support of something more broad and pragmatic.
There is a lot more to the economy than W2 income. If you want to tax worker compensation, you need to decide what is compensation. Is a nice office compensation? A company phone? A company car? A company apartment? Company-paid airline travel and hotels? Meals? Employee discount? The answer to most of these is "it depends."
If you want to tax business profit, you need the idea of business expense. Well, there are a lot of small business owners in this country. What is a business expense vs. a personal luxury for the owner?
If you want to tax asset appreciation, you need the idea of cost basis. If you don't want that to be arbitrarily cruel, you need the idea of capital loss, and capital loss carryover. Now you notice people are cheating, and you need the idea of wash sale.
The fact that complexity exists doesn't excuse the additional unnecessary complexity added at every step of the tax filing. Nor the fact that it can't be done online directly with the IRS, without potentially malicious third-parties involved.
On the other hand, with Georgism the government needs to know how to assess land value. It does make those assessments now, but it's bound to become more politicized if all revenue is coming from land.
I also wonder if practices would emerge to make it impossible to know who to send the tax bill to.
Thanks, I had found this once before but couldn't remember the name of it and have been looking ever since.
Sounds like it's Socialist for land, but free-market for everything else. Who knows whether that's good or not, but it's at least a different approach and more interesting than the standard "Progressivism driving the speed limit" that we're used to.
Category 0. would be "policy that rewards the coalition of people who keep you in power." Reason and principle are rhetorical distractions. The rule is to take from the people who don't and give to the people who do. It's not even an abstraction, it's just politics in its most essential form.
I think the posters point is that thinking of it that way might be missing an important motivation behind many taxes, which is maintaining the power base by helping those seen as supporters and hurting those seen as detractors.
If thinking of an abstract incentive/disincentive structure, you could phrase it as ‘incentivizing those who support me to continue to support me’, and ‘disincentivized those who don’t support me from continuing to not support me’, but those are never the reasons given. To their point, the reasons given can or are often transparently be seen to be the more direct reason, but always have a smokescreen with rational justifications as to why they are not.
If you don’t look at underlying motivations, it’s easy to get caught up in the rational (smokescreen) reasons for something and chase your own tail endlessly without addressing the underlying causes. My 2c
Ah, thanks, yes that makes the comment more clear.
Yes this gets into the meta game of taxes. Aka what actually happens is that the law that gets passed is the one that is the maximum benefit for the party in power that gives the minimum required to get the votes from the minority.
This is mostly true for any legislation though.
Taxes are pretty interesting laws in that they have become this massive catch-all place to push the economy around. It's an endless source of unintended consequences.
It would be interesting to see this alongside the amount of tax avoided through regulatory capture in various industries. I assume that illegal tax avoidance is dwarfed by perfectly legal tax avoidance.
Because other people pay taxes for them. Classic example - company builds a factory and pays minimum wage to the workers. Workers are unable to live off of it so they apply for benefits.
The company meanwhile transfers all the profits using IP licensing and other tricks out of the country.
Higher earners working for different companies pay progressive tax to cover for benefits of low paid workers.
Politicians claim if they clamp down on tax avoidance and evasion then companies will leave the country and at least the workers pay income tax.
The problem is that people on higher income de-facto are subsidising those big corporations. They cannot save money to start their own businesses and even if they somehow manage to do it, they cannot compete with big companies that don't pay taxes.
If companies like Uber were banned from my country, there would be no economic cost - quite the opposite. We will have many local equivalents competing for customers (not shareholders) and paying the right tax.
How does that number compare to the actual amount of wealth and income they individually generate? 38.5% seems incredibly low given the gross disparity in wealth between the top and bottom.
According to https://dqydj.com/average-median-top-household-income-percen..., the 99th percentile household accounts for 5.75% of the income. In reply to the sibling comment about the bottom 50% paying 4% of federal income tax, the bottom 50% is responsible for 18.3% of income.
That's not the question. I'm asking if the top 1% earn 38.5% of taxable income, or if they earn more than that. If they earn more than that, then 38.5% is clearly underpaying on their taxes. Doesn't really matter to me if they did so illegally or by bribing a legislator to change the laws for them - it's still evading their fair share of taxes.
I googled [federal income tax paid by top 1] which returned "The top 1 percent paid a greater share of individual income taxes (38.5 percent) than the bottom 90 percent combined (29.9 percent). The top 1 percent of taxpayers paid a 26.8 percent average individual income tax rate, which is more than six times higher than taxpayers in the bottom 50 percent (4.0 percent)."
Hope that clears that up.
> Wealthy people don't have taxable income.
Do you have a source for Bill Gates not having taxable income?
Something like half of Paul Allen's estate went to the government.
Again, top 1% income earners and top 1% by wealth are VASTLY, VASTLY different things.
Top 1% by wealth is unattainable even for most people making top 1% by income.
I'm top 1% by income. I am nowhere even close to top 1% by wealth. Even after working the rest of my career in the top 1% by income, I will not get anywhere even close to top 1% by wealth.
"In order to be in the top 1% of household wealth in the U.S., you'd need to be worth at least $10,374,030.10, according to Forbes." On the other hand, "Nationwide, it takes an annual income of $538,926 to be among the top 1%."
Saving up to $10MM making $500K/yr takes the better part of a career. However, practically no one makes this sort of income for most of their working lives. Most 1% income earners only make that for the back half (at most) of their career -- more often, less than a decade. And lots of 1% income earners don't even start their career in earnest until 30+. So it's a relatively short portion of a career making $500K+/yr but with 10 years of deferred income (and appreciating/compounding) at the outset. Possibly also a pile of debt.
I'm somewhat biased, but my general take is that the top 1% by income do pay roughly their fair share but the top 1% by wealth don't. Why do we tax capital gains at a lower rate than productive labor? That's insanity.
There are, in my opinion, two ways to look at capital gains taxes, depending on where the relevant assets come from:
1. For assets that come from income you yourself earned, the tradeoff is basically whether you spend the money immediately or spend it later. If you're going to have a capital gains tax, that tends to penalize people who don't spend the money immediately. You can mitigate that by at the very least inflation-adjusting the basis, but the US currently does not; I can't speak for other countries. And that still ignores the time value of money and discount rates, of course. But inflation indexing of basis seems like a bare minimum requirement for claiming that capital gains income is like wage income; otherwise you are taxing nominal gains that are not real gains.
2. For assets that come from an inheritance, there is an argument to be made that now this is no longer you just deferring consumption. It's still deferred consumption in the sense that whoever you inherit money from deferred it, but the moral argument becomes a little more complicated, because now you start having the basic moral argument about whether inheritance should be a thing at all. There are also the complications around basis step-up (which is, I suspect, there for practical reasons that may be becoming less and less important in a world where the record-keeping is outsourced to brokerages and the like more and more).
More generally, it's not clear to me that "income" is even the right thing to be taxing. A progressive consumption tax might be a better idea if what you want to tax is consumption of resources in excess of "normal". Unfortunately even small moves in that direction (e.g. luxury taxes that used to exist) have largely gone away in the last few decades. In large part under the flag of "it's hurting jobs in our state's industry".
IANA tax accountant or attorney, but are you sure this is true? My understanding is that, if it is reasonably obvious that you will owe the IRS at tax time next year, you are obligated to pay estimated taxes in advance, every quarter. You do NOT just get to keep all that money for a year and settle up at tax time.
Yup - and pay heavy penalties if you don’t (with interest).
The idea that you only owe tax at the end of the year is a fiction the federal gov’t and IRS is more than happy to continue supporting for the majority of tax payers, as it reduces resistance to the income tax. Tools like paycheck withholding were built to support that fiction and lower resistance as well. People fight less when they don’t see the total amount of money they are actually paying in one lump sum. When they get a lump sum ‘payout’ (yearly tax refund), it helps when it is larger and less frequent. They don’t connect the dots that it is their money they’ve been paying into the system every week as easily.
Every business (including all businesses paying out wages, and any receiving 1099 income) need to pay quarterly taxes and pay the IRS. Individuals who need to pay estimated taxes (did not do sufficient withholding), need to do the same.
The yearly tax return is doing the final audit/complete analysis and trueing up any amounts paid for the year, and certifying it. It isn’t when you’re taxes are ‘due’ - rather when they need to be completely correct or else. They actually needed to be paid quarterly.
not sure you are aware of this but you can contribute to a SEP IRA[0]. this has a lot of advantages over contributing to a normal ira. in my experience you can contribute more than you usually can in a 401k since most employers do not let you contribute after tax.
it absolutely does...
I learned this the hard way as a 16 year old, I was absolutely infuriated they could fine me 1000s as a kid when government schools taught me "taxes are due April 14, end."
(Yeah I never fell for the government's trick to always evade responsibility for everything by claiming they're multiple distinct unrelated entites "oh we are XYZ, so ya know we pretend we have no responsibility for the actions of PQR when in fact both are The Government, one coherent whole")
Wow this is insanely inaccurate and downright dangerous advice. If you listen to this comment and things go sideways you can literally lose major assets or even be imprisoned.
1. You must pay estimated taxes if you earn more than a certain percentage of last year's income without taxes withheld. You emphatically do not have until the next year's tax filing deadline to pay your taxes. Estimated taxes are due quarterly.
2. If you invest the tax portion of your income and it loses value, you still owe the original amount. So now not only do you need to liquidate that investment but you also need to pull money out of other areas to cover the loss.
3. Despite pseudo-libertarian propaganda to the contrary, money you owe in taxes does not magically become "your money" just because you haven't written the check yet. You shouldn't invest money you can't afford to lose (especially in crypto of all things) and you can't afford to lose Uncle Sam's money.
4. One of the only things the IRS won't take from you is your primary residence (but they will put a levy on it, making it impossible to sell or refinance until the debt is paid in full), so using tax money to buy down home equity is one the stupidest things you can do.
Talk to a CPA before making huge financial changes, especially if the entire reason for the changes is trying to make money by arbitraging tax funds.
NB: "large enough" here is less than what most full-time 1099 software workers will make. $8K I think? For the whole year. I remember hitting it more than once in grad school when I was doing contracting on the side.
No? Unless you mean to say that the only way to make money is to not pay taxes, and not only that, but if anyone makes more money than someone else, they do so by paying less taxes.
I'm not sure how your statement follows what I said.
I was indicating that there may be a lot of people that appear "poor" to the IRS with neither a lot of income nor a lot of losses/deductions to offset income that may in fact be earning a lot of money. And efforts to enforce tax collection of the "rich" will not identify these people.
This article specifically talks about _unreported income_ among the "top of the income distribution". I'm saying that if they're known to the IRS as being at the "top of the income distribution" what may be lurking below the top that goes uninvestigated.
> After correcting for this bias, we find that unreported income as a fraction of true income rises from 7% in the bottom 50% to more than 20% in the top 1%, of which 6 percentage points correspond to undetected sophisticated evasion. Accounting for tax evasion increases the top 1% fiscal income share significantly.
I was being a little bit facetious in my attempt to point out the problems with the "by definition". There are two factors: the amount earned, and the percentage of that taxed. Tax evasion is paying less than what one "should" (everyone probably knows what I mean, but this can be nitpicked, so I'm adding quotes), for that amount earned. You are right in that the amount of unpaid taxes is more easily larger the more you earn, but by no means is a definition here that follows.
Your point, as you explain it here is still a valid one though, but I didn't read your prior post as to mean the same. Since tax evasion can be both hiding income, as well as finding loop holes. Maybe they are more the same than I had thought. Hm. Maybe I learned something.
As I see it, for rich enough people, tax evasion is akin to a tax on moral conscience. They pay as much as they think they should, or so it seems.
Not really. There's a question of if we're talking about the reported income distribution or the actual income distribution, of course.
If it's reported income distribution, you could have a lot of reported income as well as some amount of unreported income.
If it's total income distribution; having a lot of unreported income would put you at the top, but of course, it's hard to know about it, unless the income is discovered.
You can dodge taxes fairly completely when you're small (think cash only employment and side gig) and there's not much to tax but they have plenty of incentive to track you down and get your money if you get big and it's hard to hide that much money moving around. Government isn't gonna let that much money slip through its fingers.
So the rich report their income, mostly, or at least enough of it to be rich on paper. They just minimize their liability as much as they can.
If you haven't read Rettig's letter[1] to Wyden explaining this, you might want to. It would inform you on the complexities that TCOs face when performing different types of audits. Why different types of audits? Tax fraud takes different forms largely based on class. Working class tax fraud is handled by correspondence audits, while capital class tax fraud is handled by face to face examinations. You can imagine the difference in training and cost without me explaining it to you. (Also it's in the letter)
This difference in types of audits brings along a difference in cost to the IRS. correspondence TCOs cost less than face to face examiners. Correspondence examiners are GS-5 through GS-8, while face to face examiners are GS-7, 9, and 11. It simply costs more to audit the rich right now. If you want to pay correspondence TCOs the same as face to face TCOs, or believe that high value audits should be conducted by correspondence TCOs that's one thing. But this topic deserves an understanding of the structural challenges that auditing the capitalist class entails.
Except people with a lot of money can afford a team of lawyers and accountants to grapple with the IRS. Middle income people can't afford to fight back. The path of least resistance is to ignore the big fish and just catch as many small fish as you can.
I think this completely mischaracterizes the relationship that wealthy participants have with the IRS.
Factor in these two things:
1) The relationship with the IRS for the wealthy is not adversarial like 100% of the interactions with the IRS are with poorer people. Very many interactions with the IRS are pre-emptive as well as collaborative. The poorer experience is completely retroactive enforcement with the tax authority seemingly already having made a conclusion about what you owe at the worst time for you to come up with that money. Very big difference in experiences.
2) Lawyers and accountants know the law better than the IRS.
Yes, “fighting back” can be an accurate term, but its more accurate to say “respond” at all. On the wealthier side, it is rare that an interpretation devolves into an adversarial relationship. The IRS is motivated by having a clear lineage of funds and rationale, as opposed to actually optimizing revenues via taxes.
>The relationship with the IRS for the wealthy is not adversarial like 100% of the interactions with the IRS are with poorer people.
The working class gets audit mail, while the capitalist class get to talk face to face. It is the privilege of talking it over. If you can take just a moment to view the IRS as a customer support line, the rich get to talk with a real human.
But as I mentioned, its not adversarial to begin with. Most tax compliance - although much more obscure and less used - is telling the IRS in advance how little you will pay.
From an 83(b) election on an arbitrarily short vesting schedule you made for yourself for discounted assets, to Advance Pricing Agreements which you pay for, to Private Letter Rulings, to tax-exempt status for your non-profits. It just isn't the same experience with that agency.
I don't think I'm in disagreement, but maybe you can tell me. The popular portrayal that a face to face meeting with the IRS is the worst needs to be debunked. Anyone who thinks a face to face meeting with a TCO needs to keep in mind who is getting face to face examinations and what that implies. It's much more cordial than the adversarial mailers that the prole gets.
We're mostly just talking about different things. Yeah audits are not the end of the world, and every transaction that was filed needs to already be rationalized for how it would be explained in an audit.
I've been talking about all the interactions one can have with the IRS before taxes are ever filed.
I see where you're coming from; but isn't it more the case that the kind of audit you get depends on the kind of error/fraud you have in your return?
My understanding is that the majority of "working class" audits are around tax credits and that the IRS knows to a moral certainty that there's a problem due to internal inconsistencies in the filing itself.
Chiming in on this, its mostly correct, but not a key distinction as wealthy market participants have many tax credits as well. EITC (Earned Income Tax Credit) is the majority of their enforcement though, according to IRS agents.
The IRS uses a social graph which affects the working class more than others. Basically, if you get paid by someone and that someone deducts the payment on their taxes, the IRS is looking for the recipient (you) to see if the IRS was paid by the recipient to make up for the deduction. So this is done with W-2 employment and 1099 payments.
This affects individuals more so because there is no clear guidance on whether 1099 filings are necessary for payments to LLCs and other entities, and there likely never will be. LLC's are not expensive or exclusively the domain of the wealthy, but in practice they are, and the opportunities available to a contractor to act as an individual versus in a corp-to-corp payment situation are pretty heavily correlated to the value of the contract.
Just one of many examples of the different experience.
Class is a determiner of the type of fraud, and the type of fraud determines the auditing procedure.
Working class people commit fraud related to EITC, child tax credit, American opportunities tax credit, and medical expenses. Capital class tax fraud covers pensions, annuities, rents, fellowships, scholarships, royalties, business expenses, bad debt deduction, property, and capital gains.
Those who commit the first types of fraud get one treatment while those who commit the second types of fraud get another. The end result is that working class people get treated by the IRS in one way and capitalist class people get treated another.
I feel like someone is going to come in and say "well they have no incentive to pay the taxes" or "it's the government's responsibility to make sure the taxes are paid" or "maybe they are just trying to maximize shareholder value"
Or, more realistically, we will all agree that billionaires are easily able to shelter their income from taxes, and then for some reason vote in huge tax increases that only affect the middle and upper-middle class.
there aren't enough billionaires to vote in anything. if they have that kind of power, it's a power that trumps the democratic institutions of this country.
Buying media for propaganda doesn't seem to be working very well. Washington state just passed a 7% income tax on all capital gains over $250,000. That's hardly limited to the super rich.
FATCA forces all signatories to report US tax payer info to the IRS no matter the country in which they have a bank account.
CRS signatories do the same thing for pretty much every country in the world and automatically exchange bank account information with the tax office of one's country of residence.
Pretty much every offshore center requires identification of the UBO - Ultimate Beneficial Owner - of any tax structure in place.
It's so so so much harder to open a bank account in a country in which one is not resident because the US has a very long reaching arm and frequently punishes sanctions banks or entire countries for failing to have proper anti-money laundering controls in place. Yes, banks can be fined, not because money laundering took place but just because the regulator decided that the controls in place are not sufficient.
Where does that leave us? On one hand, tax evasion is much harder. On the other, money has become a system of control. The government knows by default who has how much in their bank account. Banks are deputised with government powers and can lock your account merely on suspicion of a fraudulent transaction. When they freeze your funds, they are legally prohibited from telling you why. You essentially don't own your money and there is no due process to have it seized. Developing countries are pretty much excluded from the modern financial system. It's close to impossible to process financial transactions if you're a software developer trying to sell your products but have the misfortune of living in Nigeria or Cuba.
It's a modern aberration that the internet is so free yet the financial system isn't at all but most people in developed countries aren't affected by this so they simply don't care. What's the point of crypto when I can use venmo, right?
[edit] typo