Working Paper: NBER ID: w28542
Authors: John Guyton; Patrick Langetieg; Daniel Reck; Max Risch; Gabriel Zucman
Abstract: We study tax evasion at the top of the U.S. income distribution using micro-data from random and operational audits and focused enforcement initiatives. Leveraging enforcement that revealed noncompliance ex post, we find that under the audit methods used during 2006–2013, individual random audit data failed to capture sophisticated evasion via offshore accounts and pass-through businesses. Consequently, estimates based solely on individual random audit data from this period under-state evasion by the highest-income Americans. We propose a theoretical explanation and construct new distributional estimates of noncompliance in the United States. Accounting for sophisticated evasion increases unreported income of the top 1% of the income distribution in 2006–2013 by 50% and increases the top 1% fiscal income share by about 1 percentage point.
Keywords: Tax Evasion; Income Distribution; High-Income Taxpayers
JEL Codes: D31; H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Individual random audit data from 2006 to 2013 (C80) | Understate tax evasion among the highest-income Americans (H26) |
| Sophisticated evasion through offshore accounts and passthrough businesses (H26) | Understate tax evasion among the highest-income Americans (H26) |
| Audit procedures from 2006 to 2013 (M42) | Detect a sharp decline in reported evasion at the top of the income distribution (H26) |
| Offshore evasion (H26) | Rarely detected despite its occurrence (Y50) |
| Tax evasion via passthrough businesses (H26) | Highly underreported (Y50) |
| Corrected estimates of underreported income (H26) | Suggest sophisticated evasion increases unreported income of the top 1% (H26) |
| Sophisticated evasion (H26) | Raises the top 1% fiscal income share by about 1 percentage point (E25) |
| Growth of passthrough structures (H19) | Facilitates new strategies for sophisticated tax evasion (H26) |