David Cay Johnston\’s very weird statement

He\’s been reading Ritchie\’s report and comes out with this:

While the United States has one of the most effective tax regimes, especially for on-the-books wage earners and pensioners, and one of the smallest underground or shadow economies, it has the largest amount of tax evasion measured in dollars.

Yes, having the largest economy in the world will do that. A small portion of something very large is large in absolute terms.

The United States has lower tax rates than eight of the nine other top 10 tax evasion countries. Rampant evasion in America raises doubts about the notion that high tax rates fuel evasion.

Where the fuck did that come from?

We\’ve just said that the US has less tax evasion than other countries and that the US has lower tax rates than other countries.

This is proof that high tax rates don\’t cause evasion how?

Does just reading Ritchie fry brains now?

4 comments on “David Cay Johnston\’s very weird statement

  1. There is nothing inconsistent in what I wrote. A country can have a rigorous regime and rampant tax cheating at the same time, especially where as I specified the rigor applies to wage earners and pensioners.

    To understand this imagine an economy with 100 people, 99 of whom earn wages that are independently verified and equal half of all income.

    The one has the other half of the income, all of which comes from owning businesses that employ the 99 and verify their wages so that they can be deducted as a business expense.

    If the one reports only 80 percent of his income then the tax cheating equals 10 percent of the economy.

    In this situation the regime is, as I wrote, effective for wage-earners. But there is still rampant cheating.

    This is why I have observed many times that America has two income tax systems, separate and unequal.

    One is based on a complete lack of trust in the vast majority. Their wages, dividends, interest (and mortgage interest paid out) are verified to the penny. Dependents must have SSNs to qualify for exemptions.

    The other system, which applies to the one, relies on trust except for audits, the funding for which has been dwindling relative to the economy for more than two decades. What audits are done are often superficial, shut down early for dubious reasons and audits focused heavily on the largest companies, not on individually-owned enterprises of the kind in my model example above.

    Also, high tax rates are only one factor in the propensity to cheat. A rich literature, including behavioral experiments and data analysis, shows that risk of detection and expectations of that risk, play a large role in tax cheating (and other white collar crimes like those also discussed in my Reuters column.)

    Rampant cheating by those with unverified income has been identified in numerous official government reports and testimony by high government officials whom I have cited many times in past articles, columns, lectures and books. Indeed, one Washington DC entrepreneur collected several billion dollars of income — publicly disclosed! — and yet the IRS was unaware that he paid no taxes until someone with a beef over a small fee they were denied turned him in. The anomaly was the detection of this crime, not the crime itself.

  2. Tim,

    This is the first chance I’ve had to read blogs since October 23rd. I log on, and see the word ‘Ritchie’.

    Sigh.

    A very Merry Christmas to you and yours.

  3. “Rampant cheating by those with unverified income has been identified”

    Good for the “cheaters”–time the rest of us joined in. I am tired of watching political scum pissing the money they steal from us up against the wall

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