In 2001, the IRS (Internal Revenue System) estimated a tax gap, the difference between how much money the government actually made off of taxes and how much they should have, of $345 billion. In 2006, it was $450 billion. The unreported income is currently estimated to be $2 trillion, making up 18 to 19 percent of total reportable income not being properly reported to the IRS.
With the current national debt reaching almost $21 trillion, if these taxes start becoming properly reported and paid, given that they only go towards repaying debts, we could clear all of our national debt by 2060. Within our lifetimes, we could see a debtless America.
The main reason these taxes are evaded is because they can be. Using offshore bank accounts based in countries with little to no income tax or property tax, companies are able to avoid paying taxes in the U.S. where the majority of their money is made.
With the U.S. tax codes reaching 70,000+ pages in length, compared to other countries whose tax codes are less than half as long, loopholes are plentiful and use of them bountiful, allowing multi-billion dollar companies can easily skip out on these taxes.
As long as a company has “business” in these countries, they can report that the majority of their money comes from them, and they can pay all of their income taxes there. Because they’ve already “paid” their taxes in another country, they can report to the IRS that they’ve already paid their taxes to a different country and completely avoid paying U.S. taxes.
The reason there are quotations around “business” and “paid” is because they do not actually have business there, and they pay a miniscule amount compared to what they should be paying.
In countries known as tax havens, a jurisdiction that has a low rate of tax or does not levy a tax as well as offers some degree of secrecy, “law firms” and “office buildings” exist that consist entirely of rooms of lock boxes. If a company rents out one of these lock boxes, they can claim to have offices in that country and report that most of their business comes from that office. In addition, these countries are much smaller than the U.S. and do not need a lot of tax revenue due to the size of their governments. They also have so much reported income through this system that even a small cut of it is a large amount of money. This allows them to charge abysmally low tax rates on these companies that make billions a year.
This practice started in the 1960s and since then, almost every presidential candidate has made promises to put an end to it, including the current president, Donald Trump. However, President Trump, a known tax evader in his own right, has actually made it easier for it to continue by reducing the IRS’s ability to investigate and prosecute tax evaders.
His new tax plan also effectively lowers the tax rates these businesses are supposed to pay considerably. He bases this plan on the principles of trickle-down economics, an economic theory in which taxes are lowered for big business and the wealthy upper class in order to stimulate investment and incentive to pay their employees higher wages. The only problem is, there is nothing forcing them to do these things and greed takes over. Instead of using this extra money for its intended purpose, they instead keep it for themselves, effectively making the rich richer and the poor poorer.
Aside from the fact that numerous credible economists have disproved the theory of trickle down economics numerous times, the plan was still enacted, taking a prideful leap deeper into the rabbit hole that is our 70,000 page tax code.