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Tax evasion is a global problem

By Kay Bell · Bankrate.com
Tuesday, July 21, 2015
Posted: 10 am ET

Despite our many global differences, there's one thing that almost every person on earth can agree on. We don't like taxes.

Greece has the most blatant tax evasion problem right now. Above, Monastiraki square in Athens.

Greece has the most blatant tax evasion problem right now. Above, Monastiraki Square in Athens.

Even when we accept that taxes are necessary to provide the many services that we, our families and our friends depend on, we still complain that they're too high. And a lot of us decide we're just not going to pay all that we owe.

Tax evasion -- that's the nicer way of saying cheating on your taxes -- knows no borders. In fact, the commitment of many Greeks to keeping their cash out of the tax collectors' hands has been cited as a key contributor to the country's continuing financial troubles.

Greece's big fat tax evasion problem

Tax evasion has been called Greece's national pastime. Harry Theoharis saw it firsthand as head of Greece's tax collection agency for 17 months. But threats of physical harm and even death prompted him to call it quits in June 2014, Theoharis told England's The Telegraph newspaper.

On top of the literal danger, Theoharis said he also was under intense political pressure to ease up on some residents, particularly the wealthy. Politics and taxes are the same worldwide. An International Monetary Fund cited wealthy Greeks, notably self-employed professionals such as doctors, dentists and lawyers, as among the country's top tax evaders.

Regardless of a tax evader's income, he or she usually excuses the decision to shave a few dollars off a tax bill or ignore it altogether as a minimal loss for a country's overall treasury. But like most things in life, tax evasion is cumulative. And it can add up to big problems.

For Greece, tax evasion was a contributor to the country's latest bailout, an emergency $7.6 billion loan from eurozone countries last week. Further financial details are still being negotiated with creditors, but one requirement has already been announced. Greece must improve its tax collection rate.

US has a tax gap, too

While not as dire, the United States has its own tax gap. This is the difference between taxes owed and taxes paid, and the IRS says the last time it estimated the amount, which was in 2006, it came to $450 billion.

The IRS was able to get some of it through enforcement actions. But that still left $385 billion uncollected.

Still, the compliance rate for U.S. taxpayers is more than 83 percent; more than 85 percent after they get a little nudge from the IRS.

The biggest contributing factor to the tax gap, according to the IRS, is the underreporting of income. In 2006, it accounted for $376 billion of the total tax gap, up substantially from $285 billion underreported five years earlier.

The income amounts that were less than accurate, says the IRS, tended to come from self-employment sources that were subject to little or no information reporting. They had a 56 percent net misreporting rate in 2006.

Taxpayers deciding not to file accounted for $28 billion in 2006, a billion more than in 2001. And paying some, but not all, that was owed increased in 2006 to $46 billion, up from $33 billion in the previous study.

Are you a tax scofflaw?

If you've contributed to America's tax gap, you might want to rethink your tax actions.

If too many of us decide to shirk our voluntary tax-paying responsibilities, things could get ugly. In her midyear report released July 15, the National Taxpayer Advocate Nina Olson warns that the IRS could be forced to transition from an agency that still nominally focuses on taxpayer service to one that will make tax enforcement its main job.

I don't think any of us wants that.

Keep up with the wide world of taxes by subscribing to Bankrate's free Weekly Tax Tip newsletter. You also can follow me on Twitter: @taxtweet.

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3 Comments
Herb Edwards
July 25, 2015 at 6:30 am

Keeping taxes at its very simplest form, I'll start with property taxes. I live in a state with no sales or income taxes, so therefore, our revenue stream is mostly property taxes and fees on everything that they can think of. I like to have my trash and recycle picked up at the curb. I like my roads and sidewalks plowed in the Winter and am willing to pay for that. I like knowing that I have the Police Department at my beck and call. So I pay my taxes. Moving up the ladder, I like knowing that we have a strong military and that someone is watching the corporations pour contaminants into our streams and rivers. Who else would do it? For a strong society taxes are a necessary evil. That the rich feel that they are contributing in other ways, such as providing jobs, is mostly an illusion on their part. Maybe jobs for off-shore money managers, but little else. I have been watching Greece for years and they have made their own problems by letting the rich control the purse strings. I am surprised that the EU bailed them out again. It will all end in a few more years. Tax evasion isn't only something the rich do. I prepare tax returns and see it even on the lowest income scale. I have had clients come in with a list of "deductions" that curl my hair. I hate to turn income away but my signature goes on those forms also.

Steve Vinzinski
July 24, 2015 at 7:49 pm

Very nice article by Ms.Bell.I have read many articles on tax evasion and my Tax Professor in law School would agree with this article.I have always felt just declare everything and still do today.Use deductions that are correct and just become use to paying taxes.The Military needs money to keep going then we have education and social security and medicare and so on.