The difference between what is legally owed the federal government and what it actually collects in taxes each year is called the “tax gap,” which the IRS recently estimated reached $385 billion in 2006. Other studies have placed that figure higher — at upwards of $600 billion.
So who owes this money and why? The single biggest contributor to the tax gap — accounting for 84% of it — are people who simply under-report their income. This doesn’t usually happen to folks whose employers withholds taxes from their paychecks, as 99% of people in that position end up paying their income taxes in full and on time. The biggest headache for the IRS is collecting business income from the self employed, who must voluntarily report their earnings…
This being Tax Day our current system of taxation is on my mind. When I was self-employed for six years I paid taxes on all the money coming in. I believed I had an obligation to pay my “fair share”. I didn’t want to be a free-loader on society. But I will admit that I took advantage of several tax loopholes offered for small business owner that pretty drastically reduced what I owed.
I don’t think I am the only one who thinks that our tax system in the country is completely haywire. After decades of special interest loopholes have been added turning the tax code into a 10,000 page document its time to pretty much throw out what we have and replace it with a new system. The simpler system the better. There are all kinds of proposals around but which would be the best? To find that out we need to understand just who is championing each new idea.
It is no secret that lobbies pretty much run the country now. If you have enough money/influence/power you can get just about anything turned into law. (because of that influence it is almost a good thing that our government is in such gridlock). Whatever replaces those thousands of pages of current tax code must be a moral document. It must be seen as fair and compassionate for all of us. Of course there will always be those who are anti-everything that will scream about the government stealing their hard-earned gains. We can do nothing to appease them but for most of the rest of us we know it is our duty to support our government and especially our shared infrastructure. It is important for us to give our fair share.
Here is an excerpt from the New Yorker magazine about this:
Behavioral economists call the cultural tendency to pay duties, “tax morale.” As James Suroweicki of The New Yorker defines it:
We don’t pay our taxes just because we’re afraid of getting caught; we also feel a responsibility to contribute to the common good. But that sense of responsibility comes with conditions . . . we’ll chip in as long as we have faith that our fellow-citizens are doing the same, and that our government is basically legitimate. Countries where people feel that they have some say in how the state acts, and where there are high levels of trust, tend to have high rates of tax compliance. That may be why Americans, despite being virulently anti-tax in their rhetoric, are notably compliant taxpayers.”