America’s Rigged Tax Collection System

by Gerald E. Scorse / December 1st, 2018

Charges of rigging fill the air in today’s America. Elections, the economy, college admissions, the list seems endless. Whatever the truth in other cases, our tax collection system is undeniably rigged. It’s been so from the beginning, rigged against the vast majority of workers.

In 1943, under pressure to pay for World War II, Congress passed a law requiring employers to withhold taxes and report the incomes of their employees. The same law implicitly allows self-reporting by huge numbers of largely high-income taxpayers: landlords, self-employed professionals, small businesses, et al.

Tax compliance figures for the two groups differ starkly. The latest estimate from the Internal Revenue Service shows 99% compliance by wage and salary earners. Self-reporters, by contrast, are evading scores of billions in taxes year after year.

Here’s the bottom line from the IRS:

Findings from earlier tax gap analyses that compliance is higher when amounts are subject to information reporting and even higher when also subject to withholding, continue to hold….Misreporting of income amounts subject to substantial information reporting and withholding is 1 percent; of income amounts subject to substantial information reporting but not withholding, it is 7 percent; and of income amounts subject to little or no information reporting, such as nonfarm proprietor income, it is 63 percent.

Self-reporters take several forms, for example,…

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