for most Americans. Proper compliance is required by law, and yet, every year, the federal government is left to grapple with a tax gap – a discrepancy between what is owed and what is actually collected. This tax gap is caused by people who accidentally or purposefully underreport their tax liability, underpay their tax, or fail to file a tax return at all.
According to a recent IRS report, the agency estimates the overall compliance rate tax returns to be approximately 84 percent. However, a significant amount of revenue remains unreported or unpaid every year.
Recently the IRS estimated this gross tax gap to be around $345 billion. After the IRS obtained some of that missing revenue through enforcement or late payments, the net tax gap was still a staggering $290 billion for that year.
How can we understand what motivates people to intentionally “cheat” on their taxes?
If you feel others are cheating on their taxes, especially people who make more money than you, you’re more likely to rationalize cheating on taxes yourself. Many people in this anxious class who have suffered the effects of the recession may think “if people at the top don’t pay their taxes, why should I?”
While the country’s federal tax code is considered progressive, some feel it grants the wealthy many loopholes. This further fosters resentment among those who believe the tax burden falls unjustly on those who can least afford it.
According to an annual poll conducted by the IRS Oversight Board, over 80 percent of people surveyed thought it was not acceptable to cheat on taxes. This leaves almost 20 percent of people surveyed who believe some form of deception is acceptable. It’s important to note, however, that these figures do not represent the actual percentages of people who do (or do not) cheat the IRS.
It’s interesting to note that according to the 2011 IRS survey, paying taxes is viewed as a civic duty; accountability for cheaters is strongly favored. The vast majority of the public – 72 percent – “completely agree” that “it’s every American’s civic duty to pay their fair share of taxes.”
Additionally, integrity remains by far the top reason to pay, while fear of an audit is down. Taxpayers continue to take a strongly ethical stance on paying taxes. Seventy-nine percent say that their “personal integrity” has a “great deal of influence” on whether they pay their taxes honestly. Fear of an audit remains the third most important influence to pay.
In my opinion, most people are inherently honest. Most of us want to pay our fair share. Life, however, gets in the way and at times it can appear as though our society is coming to terms with the idea that cheating on your taxes may just be a way of life for a growing number of Americans.
Would you cheat on your taxes? No need to respond to me with an answer, but it’s worth thinking about it. Do you fall in the 80% or 20% group? Perhaps this thought will give you the added strength of character to do the right thing in the waning hours of this year’s tax season: According to ancient Jewish tradition, a man is not punished for thinking bad thoughts, he’s only punished when he acts on those thoughts. Good luck with your taxes!
About Moshe Klein
The complications of the tax code is what is essentially immoral. The fact that a small business owner or even an average family has to pay an accountant or service to make sure one is compliant is the real culprit.
Between Federal, State, Sales, Property and the countless other taxes and fees that people must deal with, the system is overwhelming. We are a nation that is taxed to death – literally.
Cheating is always wrong and the laws must be abided by. But the government has a responsibility to make collecting taxes more simpler and that requires a tax code makeover. Until that happens most folks are just getting their tax outcomes wrong. Not intentionally cheating Uncle Sam.