DOCSLIB.ORG

Charitable Giving and Tax Policy: a Historical and Comparative Perspective

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Charitable Giving and Tax Policy: a Historical and Comparative Perspective Charitable giving and tax policy: a historical and comparative perspective Conference Volume CEPR conference May 2012 Paris School of Economics Editors Gabrielle Fack and Camille Landais Organized by CEPR / CEPREMAP Sponsored by CEPREMAP Acknowledgements This volume gathers contributions presented at a conference on Altruism and Charita- ble Giving jointly organized in May 2012 by the Center for Economic Research and its Applications (CEPREMAP), and the Public Policy group of the Centre for Economic Policy Research (CEPR). The conference was hosted by Paris School of Economics and sponsored by Cepremap. The motivation of the conference was to provide a forum for high-quality work in all areas related to the economics of altruism and charitable giving. The editors would like to thank the authors of the individual chapters, for their con- tributions and collaborative approach towards developing the papers. They would also like to thank Thomas Piketty and Emmanuel Saez, co-organizers of the event, and Daniel Cohen, director of CEPREMAP. We also thank all the participants to the conference for their helpful comments and suggestions. We are also very grateful to those who have been involved in the organisation of the event, in particular Catherine Bluchetin and Patricia Guezo at CEPREMAP, Nadine Clarke at CEPR and Sylvain Riff´e-Sternat PSE. The views expressed in this volume are those of the authors and do not necessarily represent the views of CEPREMAP, CEPR or PSE, or of the authors' affiliated organisations. i Contents Acknowledgements i 1 Introduction Gabrielle Fack & Camille Landais 1 1.1 A rich history of tax policies . .2 1.2 What can we learn from tax data? . .8 1.3 Behavioral responses to tax policies . 13 1.4 Welfare and policy implications . 14 1.5 Organization of the volume . 17 2 Charitable giving and economics Anthony B. Atkinson 21 2.1 Introduction . 21 2.2 The motives for giving . 23 2.3 Lifetime giving and charitable bequests . 26 2.4 The welfare economics of giving . 29 3 Charitable Giving and Tax Policy in the U.S. Charles T. Clotfelter 34 3.1 American Exceptionalism, the Social Contract, and Charitable Giving . 35 3.2 The Basics of the US Income Tax Policy . 40 3.3 The Outsized Role of the Rich . 44 3.4 Ongoing Issues in U.S. Tax Policy and Charitable Giving . 49 3.5 Conclusion . 51 4 Philanthropy, Tax Policy and Tax Cheating: A Long Run Perspective on US data Gabrielle Fack & Camille Landais 63 ii 4.1 Introduction . 63 4.2 The long run of charitable contributions by the very wealthy . 66 4.2.1 Elasticity of reported contributions: long-term perspective . 66 4.3 Charitable giving policy in the presence of tax cheating . 72 4.3.1 A model of optimal subsidy in the presence of tax cheating . 72 4.3.2 A natural experiment on tax enforcement . 81 5 Charitable donations and tax relief in the UK Kimberley Scharf & Sarah Smith 120 5.1 Introduction . 120 5.2 Tax relief on giving . 122 5.3 Framework for considering the effects of match and rebate . 125 5.4 Survey evidence on match and rebate . 129 5.5 Results . 133 5.6 Heterogeneity of responses across donors . 135 5.7 Conclusions and policy implications . 138 1 Introduction Gabrielle Fack & Camille Landais Even though the level of private philanthropy seems to differ widely across countries, there is still little robust quantitative evidence regarding the differentials in private charitable giving across countries and more importantly very little consensus on why these differen- tials may exist. Moreover, in the past couple of decades, these differentials in the level of private contributions to charitable organisations have become a central matter of public policy. Because private charitable contributions finance many socially valuable activities (education, arts,...), many governments have tried to boost private philanthropy through various active policy interventions, and this temptation of relying on private contribu- tions to finance the provision of public goods has increased substantially in recent years as fiscal constraints have become tighter. Despite this renewed interest, there is still very little practical and relevant policy guidance that policymakers can find in the economics literature. By providing an original comparative and historical analysis of tax policies towards private philanthropy across different countries, the essays gathered in this con- ference volume aim at shedding new light on the determinants of private philanthropy, and ultimately, wish to provide interesting practical insights for improving tax policies towards charitable giving. In this introduction, we would like to emphasize the interest of focusing on tax policies to study charitable behaviors. Indeed, the advantages of looking at philanthropy through the lens of tax policies are manyfold. First, the long history of tax policies towards charitable giving and private philanthropy is extremely rich and informative about the respective importance of the state and private entities in the provision of public goods. Large and persistent differences in the way private giving is subsidized across countries are also key to understand the role of the charitable sector in these countries. The other great advantage of studying tax policies is the availability of tax data. The existence of 1 Introduction these special tax treatments for charitable giving has led tax administrations to collect unique information on philanthropic behaviors in the long run in most countries. This information has been regularly published with other exhaustive statistics on income distri- bution and income composition. These tax statistics therefore provide us with interesting comparative historical information on the level of contributions in the long run. Another great advantage of studying tax policies is that it represents a great lab to look into the mechanics of charitable behaviors. The tremendous amount of variations in all dimen- sions of tax policies (subsidy rate, subsidy mechanism, enforcement policies, direct public provision of public goods, etc...) across countries and over time, but also within country and time across seemingly identical individuals, provides us with many opportunities to identify important behavioural parameters, and test competing models of charitable be- haviors. Finally, studying tax policies towards philanthropy is interesting because of its direct practical relevance for policymaking. In most countries, tighter fiscal constraints have put into question the functioning of tax policies towards private charitable giving, but there seems to be little consensus as to how to improve these policies. In fact, the route that goes from positive to normative analysis is far from obvious when it comes to private philanthropy, but the essays gathered in this volume all aim at making this route a little easier. We present in the remainder of this introduction all these insightful aspects of the study of tax policies towards private giving. By doing so, we aim at providing an overview of the common themes and a summary of the main findings of all the chapters of the volume. We also take advantage of this introduction to present some original results from our own research project, where we gathered historical tax data on charitable contributions in France, the United States, the United Kingdom, Canada, and Denmark. 1.1 A rich history of tax policies The comparative history of tax incentives towards private philanthropy reveals important differences in the way the role and mission of the charitable sector have been perceived by the general public as well as by the State. It also offers a striking picture of the various policy tools used over the years and across countries by governments in order to support and/or control private philanthropy. Actual tax systems bear the vivid memory of this 2 Introduction long history. We focus primarily on income tax incentives, since almost everywhere they represent the main tool used by governments to subsidize contributions, but also mention other tax incentives when and where they exist. Today, countries still differ significantly with respect to the nature, the rates and ceiling of their tax incentives for charitable donations. The US system for instance is a deduction from taxable income which is by essence regressive, and the ceiling is very high (50% of income). The French system to the contrary is a non-refundable tax credit, with a very high subsidy rate (66%) and relatively high ceiling. Countries such as the UK have also introduced more sophisticated schemes such as Gift Aid or payroll giving (see chapter 5). Countries, and this is an important theme of this volume, also widely differ in the level of controls and enforcement of their charitable tax incentives: registration of eligible charities, requirements to qualify as an eligible charity, filing requirements. Tax enforcement of private contributions is for instance still considerably laxer in the United States than in many other countries, such as France, that switched to a system very close to third-party reporting of contributions. We summarize here the main aspects of this comparative history of tax incentives, country by country. We focus on countries for which we have collected panel data: we compare first the legislation of the US and Canada, where tax incentives for charitable giving were created around WWI. We also talk about the more recent French system, for which we collected data since the 1970s. Lastly, we evoke briefly current tax incentives in Danemark. United States Tax incentives for charitable
Load more

Recommended publications
  • A Conceptual Framework for Tax Non-Compliance Studies in a Muslim Country: a Proposed Framework for the Case of Yemen
    View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by UUM Repository A CONCEPTUAL FRAMEWORK FOR TAX NON-COMPLIANCE STUDIES IN A MUSLIM COUNTRY: A PROPOSED FRAMEWORK FOR THE CASE OF YEMEN Lutfi Hassen Ali Al-Ttaffi & Hijattulah Abdul-Jabbar School of Accountancy, Universiti Utara Malaysia ABSTRACT The problem of tax noncompliance is widely described as a serious global phenomenon, especially in developing and least developing countries. Literatures indicate a number of factors that could possibly influence tax noncompliance behaviour but there is no single theory that can explain the phenomenon of tax noncompliance behaviour. Thus, researchers suggested that theories from sociology, psychology and economy could be useful in explaining tax behaviour. Perception and attitude of taxpayers are among the factors contributing towards compliance behaviour. In this regard, empirical evidence indicates that taxpayers act according to their belief and attitudes. Nevertheless, the specific attitude/view of Muslims towards tax has not been considered. Consequently, the purpose of this paper is to discuss the theoretical link between the influence of Islamic religious perspective and tax noncompliance behaviour. Furthermore, tax service quality, public governance quality and tax system structure, which are perceived as relevant to developing and least developing countries, were taken into consideration in the proposed framework. The paper concluded by urging future researchers to consider the relevancy of the Muslim-majority community in the future tax noncompliance studies. Keywords: tax noncompliance, Islamic religious perspective, public governance quality, tax service quality, tax system structure. 1.0 INTRODUCTION Tax noncompliance is one of the several phenomena that has affected the global economy, and thus has attracted the awareness of researchers in the area (Ross & McGee, 2012).
    [Show full text]
  • Complexity, Compliance Costs and Non-Compliance with VAT by Small and Medium Enterprises (Smes) in Bangladesh: Is There a Relationship?
    Complexity, Compliance Costs and Non-Compliance with VAT by Small and Medium Enterprises (SMEs) in Bangladesh: Is there a Relationship? Author Faridy, Nahida Published 2016 Thesis Type Thesis (PhD Doctorate) School Griffith Business School DOI https://doi.org/10.25904/1912/1553 Copyright Statement The author owns the copyright in this thesis, unless stated otherwise. Downloaded from http://hdl.handle.net/10072/367891 Griffith Research Online https://research-repository.griffith.edu.au Complexity, Compliance Costs and Non-Compliance with VAT by Small and Medium Enterprises (SMEs) in Bangladesh: Is there a Relationship? Nahida Faridy Bachelor in Economics (Hons), Dhaka University Masters in Economics, Dhaka University Masters in Taxation Policy and Management, Keio University Department of Accounting, Finance and Economics Griffith Business School Griffith University Submitted in Fulfilment of the Requirements of the Degree of Doctor of Philosophy September 2015 Abstract The Value Added Tax (VAT), which has existed for 24 years in Bangladesh, has contributed some 37% on average to total tax revenue over the last 15 years (Saleheen, 2012; National Board of Revenue, 2014). Although, the introduction of a VAT has increased tax revenues and expanded the tax base in Bangladesh, many small and medium enterprise (SME) taxpayers do not comply with the VAT legislation, not only failing to register with the tax authorities as taxpayers but also failing to pay the VAT (Faridy et al., 2014; The Centre for Policy Dialogue, 2014). This non-compliance by SMEs could be intentional or unintentional (NBR, 2011; McKerchar, 2003). Also it may be due to excessive compliance costs (Abdul-Jabbar & Pope, 2009; Governance Institutes Network International, 2014), which could be a result of real or perceived legislative or administrative complexity (Yesegat, 2009), to inefficient VAT administration (Barbone et al., 2012), or to other factors.
    [Show full text]
  • Do Audits Deter Or Provoke Future Tax Noncompliance? Evidence on Self-Employed Taxpayers
    WP/19/223 Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-employed Taxpayers by Sebastian Beer, Matthias Kasper, Erich Kirchler, and Brian Erard © 2019 International Monetary Fund WP/19/223 IMF Working Paper Fiscal Affairs Department Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-employed Taxpayers Prepared by Sebastian Beer, Matthias Kasper, Erich Kirchler, and Brian Erard Authorized for distribution by Ruud de Mooij October 2019 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. Abstract This paper employs unique tax administrative data and operational audit information from a sample of approximately 7,500 self-employed U.S. taxpayers to investigate the effects of operational tax audits on future reporting behavior. Our estimates indicate that audits can have substantial deterrent or counter-deterrent effects. Among those taxpayers who receive an additional tax assessment, reported taxable income is estimated to be 64% higher in the first year after the audit than it would have been in the absence of the audit. In contrast, among those taxpayers who do not receive an additional tax assessment, reported taxable income is estimated to be approximately 15% lower the year after the audit than it would have been had the audit not taken place. Our results suggest that improved targeting of audits towards noncompliant taxpayers would not only yield more direct audit revenue, it would also pay dividends in terms of future tax collections.
    [Show full text]
  • Tax Evasion, Income Inequality and Opportunity Costs of Compliance
    Tax Evasion, Income Inequality and Opportunity Costs of Compliance Kim M. Bloomquist Senior Economist Internal Revenue Service Office of Research Washington, D.C. Paper presented at the 96th Annual Conference of the National Tax Association Drake Hotel Chicago, IL November, 2003 Abstract – This paper argues that widening income inequality contributes to the propensity to evade by both reducing the probability of detection and increasing compliance opportunity costs. Lower detection probability occurs as rising inequality gradually alters the composition of income from being employment-based (i.e., matchable) to investment-based (i.e., non-matchable). Greater economic polarization also increases the financial strain on many former middle-class taxpayers, thus raising their opportunity cost of compliance. In addition, the compliance opportunity costs for wealthy taxpayers also could increase if they perceive a growing exchange inequity between their tax burdens and public sector benefits. This paper tests the hypothesis that rising income inequality contributes to tax evasion in the United States. Empirical analysis for the period 1947-2000 finds a positive correlation between the underreporting rate for wage and salary income and the top decile wage share. This finding suggests that enforcement policies aimed at reducing income tax evasion may lose some effectiveness in an environment of increasing inequality. Tax Evasion, Income Inequality and Opportunity Costs of Compliance INTRODUCTION If asked to identify a single indicator that best described the overall condition of the U.S. economy in recent decades, a measure of income inequality would likely be among the top candidates. A recent study by Piketty and Saez (2001) finds that between 1970 and 2000 the share of income (not including capital gains) reported by the top decile of U.S.
    [Show full text]
  • Three Essays on Tax Abuse and the Fulfillment of Economic and Social Rights Ute Reisinger [email protected]
    University of Connecticut OpenCommons@UConn Master's Theses University of Connecticut Graduate School 12-12-2017 Three Essays on Tax Abuse and the Fulfillment of Economic and Social Rights Ute Reisinger [email protected] Recommended Citation Reisinger, Ute, "Three Essays on Tax Abuse and the Fulfillment of Economic and Social Rights" (2017). Master's Theses. 1157. https://opencommons.uconn.edu/gs_theses/1157 This work is brought to you for free and open access by the University of Connecticut Graduate School at OpenCommons@UConn. It has been accepted for inclusion in Master's Theses by an authorized administrator of OpenCommons@UConn. For more information, please contact [email protected]. Three Essays on Tax Abuse and the Fulfillment of Economic and Social Rights Ute Elisabeth Reisinger MA, European Inter-University Centre, 2011 A Thesis Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Arts at the University of Connecticut 2017 Copyright by Ute Elisabeth Reisinger 2017 ii APPROVAL PAGE Master of Arts Thesis Three Essays on Tax Abuse and the Fulfillment of Economic and Social Rights Presented by Ute Elisabeth Reisinger, MA. Major Advisor ____________________________________________________________ Susan Randolph Associate Advisor ____________________________________________________________ Kathryn Libal Associate Advisor ____________________________________________________________ Thomas Hayes University of Connecticut 2017 iii ACKNOWLEDGEMENTS I would first like to thank my thesis advisor Associate Professor Susan Randolph of the Department of Economics at the University of Connecticut. Professor Randolph gave me the opportunity to work with her on the Social and Economic Rights Fulfillment Index and was always available I if had a question about my research or writing and steered me in the right the direction whenever she thought I needed it.
    [Show full text]
  • 2.2. Illicit Financial Flows in Different Contexts
    Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Draining Development? from Developing Countries Developing from ofIllicitFunds Flows Controlling Peter Reuter Peter edited by DRAINING DEVELOPMENT? DRAINING DEVELOPMENT? Controlling Flows of Illicit Funds from Developing Countries Edited by PETER REUTER THE WORLD BANK © 2012 International Bank for Reconstruction and Development / International Development Association or The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org 1 2 3 4 15 14 13 12 This volume is a product of the staff of The World Bank with external contributions. The fi ndings, interpretations, and conclusions expressed in this volume do not necessarily re- fl ect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to the work is given. For permission to reproduce any part of this work for commercial purposes, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com.
    [Show full text]
  • Tax Evasion and Avoidance Through Financial Engineering the State of Play in Europe
    Ref. Ares(2018)5553212 - 30/10/2018 Tax Evasion and Avoidance through Financial Engineering The State of Play in Europe Document Details Work package WP1 Lead Beneficiary The City University Deliverable ID D.1.7 Date 31 October 2018 Submission 30 October 2018 Dissemination Level PU – Public Version 1.0 Author(s) Anastasia Nesvetailova Andrei Guter-Sandu City, University of London City, University of London [email protected] [email protected] Ronen Palan Yuval Millo City, University of London Warwick Business School [email protected] [email protected] Acknowledgements The project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 727145. Tax evasion and avoidance through financial Engineering: The state of play in Europe Anastasia Nesvetailova*, Andrei Guter-Sandu, Ronen Palan*** and Yuval Milo****) * Professor of International Political Economy, City, University of London ** Fellow, CITYPERC, City, University of London *** Professor of International Political Economy, City, University of London **** Professor of Accounting, Warwick Business School Acknowledgements The project has received funding from the European Union’s Horizon 2020 research and innovation program under grant agreement No 727145. We thank Professor Thomas Rixen and Dr. Petr Jansky for their comments on an earlier draft. 1 Contents 1. Introduction .............................................................................. 4 1.1. Methodology adopted by this WP1 study ................................... 5 1.2. Policy recommendations ......................................................... 8 1.3. Structure of this report .......................................................... 9 2. Financial innovation and tax abuse: Theory and Evidence .............. 10 3. The landscape of derivatives ...................................................... 15 3.1. A Brief History of Financial Derivatives ..................................
    [Show full text]
  • Tax Administration: Compliance, Complexity, and Capacity
    Tax Administration: Compliance, Complexity, and Capacity April 2019 AUTHORS Jason J. Fichtner Jeff Trinca Fellow Vice President Bipartisan Policy Center Van Scoyoc Associates William G. Gale Arjay and Francis Miller Chair in Federal Economic Policy Brookings Institution Codirector, Urban-Brookings Tax Policy Center STAFF Shai Akabas Kody Carmody Director of Economic Policy Research Analyst ACKNOWLEDGMENTS BPC would like to thank the Hewlett Foundation, H&R Block, and the rest of the Leaders Council for their generous support of this project. Special thanks goes to the Tax Foundation and Prosperity Now for co-hosting roundtable discussions and providing insights that informed this report. Additionally, we would like to thank Joanna Ain, David Newville, Elaine Maag, Kathy Pickering, and Eric Toder for reviewing and providing comments during the drafting stage, Victoria Johnson for research assistance, and Marika Tatsutani for her work on this report as a consultant for BPC. Sydney Levine, an intern at BPC, also made valuable contributions to this report. DISCLAIMER The findings and conclusions expressed herein do not necessarily reflect the views or opinions of BPC, its founders, its funders, or its board of directors. 2 bipartisanpolicy.org 4 Introduction 6 Tax Complexity and the Cost of Compliance 12 Compliance Challenges and the “Tax Gap” 15 Administrative Issues for the Earned Income Tax Credit and Child Tax Credit 22 IRS Capacity and Taxpayer Service 31 Return-Free Filing 35 Conclusion 37 Endnotes Introduction Debates over the appropriate level of taxation and the distribution of the tax burden are highly political in nature and often contentious. How the government administers the U.S.
    [Show full text]
  • Tax Division United States Department of Justice
    Tax Division United States Department of Justice FY 2020 Congressional Budget [PAGE INTENTIONALLY BLANK] Table of Contents Page No. I. Overview ....................................................................................................... 1 II. Summary of Program Changes .................................................................. 6 III. Appropriations Language and Analysis of Appropriations Language .. 6 IV. Decision Program Activity Justification ................................................... 6 A. General Tax Matters 1. Program Description 2. Performance Tables 3. Performance, Resources, Strategies V. Program Increases by Item……………………………………………….. 17 VI. Program Offsets by Item……………………………………………….… 19 VII. Exhibits………………………………………………………………….... A. Organizational Chart B. Summary of Requirements C. FY 2020 Program Increases/Offsets by Decision Unit D. Resources by DOJ Strategic Goal/Objective E. Justification for Technical and Base Adjustments F. Crosswalk of 2018 Availability G. Crosswalk of 2019 Availability H. Summary of Reimbursable Resources I. Detail of Permanent Positions by Category J. Financial Analysis of Program Changes K. Summary of Requirements by Object Class [PAGE INTENTIONALLY BLANK] I. Overview for Tax Division Introduction The Tax Division’s mission is to enforce the nation’s tax laws fully, fairly, and consistently, through both criminal and civil litigation. The Tax Division represents the United States in virtually all litigation – civil and criminal, trial and appellate – arising under the internal revenue laws, in all state and federal courts, except the United States Tax Court. The Tax Division submits a budget request for $114,931,000 for FY 2020, including 499 permanent positions (376 attorneys), and 479 full-time equivalent (FTE) work years. The Tax Division’s Primary Responsibilities The United States government engages with every American, and all those who benefit from our nation, through our tax system. Tax collections fund most federal government services, from national defense to national parks.
    [Show full text]
  • Trends As Changes in Variance: the Case of Tax Noncompliance Kim M
    Trends as Changes in Variance: The Case of Tax Noncompliance Kim M. Bloomquist, Internal Revenue Service Presented at the 2003 IRS Research Conference, June 2003 In a recent survey, Schneider and Enste (2000) report that the “shadow” economies of Organization for Economic Cooperation and Development (OECD) nations grew from 11.9 percent of Gross Domestic Product (GDP) in 1989-90 to 16.9 percent of GDP in 1996-97.1 After reviewing a number of factors that could account for this trend, the authors conclude, “an increasing burden of taxation and Social Security payments, combined with rising State regulatory activities and labor market restrictions (e.g., forced reduction in working hours), are the major driving forces for the size and growth of the shadow economy.” They reason that higher taxes and increased regulation of business create an incentive to work in the shadow economy where earnings may go unreported and tax evasion is difficult to detect. In a recent update, Schneider (2002) reaffirms his earlier view but adds the following caveat, “major tax rate reductions will not lead to a substantial decrease of the shadow economy. They will only be able to stabilize the size of the shadow economy and avoid a further increase.” The problem, he says, is that once people are engaged in the shadow economy, it is difficult to get them to stop. In an analysis of tax compliance trends among U.S. taxpayers, Graetz (1999) reaches a similar conclusion: “Voluntary [tax] compliance has declined. Of this, there can be no doubt.” However, Graetz is scornful of the notion that higher tax burden, per se, contributed to this development.
    [Show full text]
  • The American Families Plan Tax Compliance Agenda
    U.S. DEPARTMENT OF THE TREASURY THE AMERICAN FAMILIES PLAN TAX COMPLIANCE AGENDA MAY 2021 I. Executive Summary and Introduction President Biden recently proposed the American Families Plan, advancing comprehensive and necessary investments in American children and families. To help support this important agenda and increase fairness in the tax system, the President also proposed a set of tax compliance measures to foster a tax system where Americans pay the taxes they owe. This report describes the President’s tax compliance initiatives that seek to close the “tax gap”—the difference between taxes owed to the government and actually paid. According to Treasury analysis, the tax gap totaled nearly $600 billion in 2019 and will rise to about $7 trillion over the course of the next decade if left unaddressed—roughly equal to 15% of taxes owed. These unpaid taxes come at a cost to American households and compliant taxpayers as policymakers choose rising deficits, lower spending on necessary priorities, or further tax increases to compensate for the lost revenue. The magnitude of the tax gap means that compliance initiatives have the potential to raise substantial revenue, but these reforms also improve tax progressivity and economic efficiency. While roughly 99% of taxes due on wages are paid to the Internal Revenue Service (IRS), compliance on less visible sources of income is estimated to be just 45%.1 The tax gap disproportionately benefits high earners who accrue more of their income from non-labor sources where misreporting is common. Further, the tax gap imposes distortions because of the resources some expend to avoid paying taxes and the incentives created to shift economic activity into certain areas where tax liabilities can be illegally evaded.
    [Show full text]
  • An Overview of and Outlook for Tax Non-Compliance Estimates and Measurement Methods for Switzerland
    Measuring the Invisible: An Overview of and Outlook for Tax Non-Compliance Estimates and Measurement Methods for Switzerland Felix Schmutza JEL-Classification: E26, H26, O17 Keywords: Shadow Economy, Underground Economy, Tax Compliance, Tax Evasion SUMMARY This paper gives an overview of tax non-compliance estimates and evaluates the suitability of various tax non-compliance measurement methods for Switzerland. The existing estimates for Switzerland focus strongly on non-declared assets and are based on a limited number of measurement methods. Nevertheless, the estimates range widely, between CHF 106 to over 500 billion for non-declared assets and 12.6 to 35.1 percent for income, for the time period 1970 to today. These estimates could be taken as a starting point for further tax non-compliance research. They should however be verified and supplemented by estimates result- ing from other methods as a solid measurement of tax non-compliance requires a comprehensive approach including several methods. Further, the focus should shift from non-declared assets towards non-declared income. a University of Lucerne, Department of Economics, Frohburgstrasse 3, PO Box 4466, 6002 Lucerne, Switzerland and Lucerne School of Business, Institute of Financial Services Zug (IFZ), Grafenauweg 10, PO Box 4332, 6304 Zug. Email: [email protected]. This paper is part of a doctoral thesis of Felix Schmutz at the University of Lucerne. Many thanks to Prof. Christoph Schaltegger, Prof. Rafael Lalive and two anonymous referees for their valu- able input and comments. © Swiss Society of Economics and Statistics 2016, Vol. 152 (2) 125–177 126 Felix Schmutz 1. Introduction Since the aim of tax non-compliance is to hide income or assets from being iden- tified and taxed, quantifying and analysing tax non-compliance is a challenging task.
    [Show full text]