February 15, 2006


Tax Cheating Has Gone Up, Two Federal Studies Find (DAVID CAY JOHNSTON, 2/15/06, NY Times)

A new report by the Commerce Department found that Americans failed to report more than a trillion dollars in income on their 2003 tax returns. That was a 37 percent increase in unreported income from 2000.

In a separate report, the Internal Revenue Service looked at both unreported income and improper deductions and concluded that Americans shortchanged the government by $345 billion in 2001 — an amount almost equal to the projected federal budget deficit for 2007.

What percent is cheating and what percent confusion because of a code that no one can fathom?

Posted by Orrin Judd at February 15, 2006 1:22 PM

Now would be the time to unveil a huge tax-simplification plan. Hello, administration?

Posted by: b at February 15, 2006 1:27 PM

two words:

fair tax.

Posted by: JonofAtlanta at February 15, 2006 1:31 PM

If the income is unreported, how do they know it is "more than a trillion dollars"? (about 8-10% of the GDP, btw).

Posted by: sam at February 15, 2006 1:32 PM

Why? You can't pass it until you get 60 seats in the Senate.

Posted by: oj at February 15, 2006 1:36 PM

Also, the math between the two studies is suspect. If 2003 unreported income was more than a trillion dollars (a 37% increase from 2000), we can assume that the 2001 unreported income was in the range of $600m-700m. How does that compare with the $345m cited in the second study as combined "unreported income and improper deductions"?

I think they just make these numbers up.

Posted by: sam at February 15, 2006 1:36 PM

Yeah, I got tagged for "unreported" income last year. It turns out that the IRS doesn't realize that if you sell a stock option, the actual income is the difference between the strike price and the sell price. We had to explain to them that no, we didn't get the entire sale price as income. If only!

Posted by: Annoying Old Guy at February 15, 2006 1:37 PM

oj: Same reasons that Social Security reform was introduced. Laying the groundwork, forcing the Dems to openly reveal their intellectual bankrupcy, etc.

Posted by: b at February 15, 2006 1:39 PM

Win on SS first.

Posted by: oj at February 15, 2006 1:44 PM

SO WHAT if, despite the "cheating", actual tax RECEIPTS are at record high levels? It doesn't fit the MSM meme. If Bush hadn't cut taxes, there wouldn't be this much cheating! Don't you see!?

Posted by: John Resnick at February 15, 2006 2:26 PM

So, there's more cheating when the tax rate is lower?!

Posted by: erp at February 15, 2006 3:04 PM

erp: nope. "Historically, when income tax rates fall, so does tax cheating. But that is not what happened after President Bush started cutting taxes five years ago."

It's BUSH'S tax cuts that caused the cheating. Plain and simple.

Posted by: John Resnick at February 15, 2006 3:12 PM

As was noted in a previous post, it's almost impossible to detect sarcasm in today's world, so I'll clarify that my comment was "tongue in cheek" and will take it your reply is as well.

Posted by: erp at February 15, 2006 4:29 PM

erp: of course, duly noted ;)

Posted by: John Resnick at February 15, 2006 4:40 PM

The key to reduce cheating or errors is a simplified tax structure - that means little or no deductions.

Lobbyists will always pick apart the tax code. The only way forward on tax reform is the same method used in 1986 - politicians from both parties collude in secret to simplify matters in one fell swoop, otherwise everyone's favorite deduction gets in.

GOP is no better on this than the Dems - it's the way politics works.

Posted by: Chris Durnell at February 15, 2006 6:59 PM

It's tax season again and clients are plenty upset at the AMT.

Posted by: erp at February 15, 2006 7:10 PM

i was tagged for "inconsequential earnings"

Posted by: toe at February 15, 2006 10:55 PM

The real way to attack the problem is to stop relying on a single tax.

Posted by: Robert Schwartz at February 15, 2006 11:22 PM

No, increase reliance on a single tax, but simplify it.

Posted by: oj at February 16, 2006 7:43 AM