11.24.06

The Real Tax Gap

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this article on freakonomics about the real tax gap in the US. The IRS estimates the gap between taxes owed and taxes paid is about 20% of all taxes collected by the IRS. They attribute the majority of this gap to non-reported income.

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Does this mean that the average self-employed worker is less honest
than the average wage earner? Not necessarily. It’s just that he has
much more incentive to cheat. He knows that the only chance the I.R.S.
has of learning his true income and expenditures is to audit him. And
all he has to do is look at the I.R.S.’s infinitesimal audit rate –
last year, the agency conducted face-to-face audits on just 0.19
percent of all individual taxpayers — to feel pretty confident to go
ahead and cheat.

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