Richest 1% Of Americans Hiding 20% Of Income From IRS

America’s richest 1% aren’t paying taxes on up to one-fifth of their income, according to Bloomberg, citing a new study which concludes that US tax evasion is far more widespread than previously estimated.

The authors of the study found that while random audits can detect some tax evasion, the IRS misses more sophisticated schemes to avoid reporting income – including offshore structures and private business entities. According to the report, if the Treasury was able to collect the unpaid income tax from the top 1%, revenue would increase by $175 billion per year – which is roughly twice the amount Sen. Elizabeth Warren (D-MA) wants to slap on the rich with a prospective wealth tax (and which would promptly move offshore as well).

Last week, IRS Commissioner Chuck Rettig told a House panel that audit rates for high-income taxpayers have dropped precipitously over the past decade due to staff shortages among the group which audits wealthy individuals.

“We stress that our estimates are likely to be conservative with regard to the overall amount of evasion at the top,” the authors wrote, adding that while basic audits can uncover discrepancies between income reported by employers and tax returns, private business profits and complex investment partnership schemes are far more difficult to identify.

The hidden income at the top means that income and wealth inequality could be more skewed than researchers have previously estimated, the authors concluded. The study was conducted by two IRS researchers, John Guyton and Patrick Langetieg, and three professors: Daniel Reck of the London School of Economics, Max Risch of Carnegie Mellon University, and Gabriel Zucman of the University of California at Berkeley. -Bloomberg

The solution? The researchers suggested that the IRS deploy “additional tools” to “effectively combat high-income tax evasion,” which could include more specialized audits and whistleblowers. We assume the latter means rewards for dropping the dime on one’s employer.

Congress is currently discussing allocating more funding to the IRS after years of budget cuts, so that the tax collection agency can hire specialized auditors and improve their technology – while also allowing them to collect more data from banks and financial institutions.