London Daily

Focus on the big picture.
Saturday, Dec 20, 2025

The richest 1 percent dodge taxes on more than one-fifth of income

The richest 1 percent dodge taxes on more than one-fifth of income

The richest Americans are hiding more than 20 percent of their earnings from the Internal Revenue Service, according to a comprehensive new estimate of tax evasion, with the top 1 percent of earners accounting for more than a third of all unpaid federal taxes.
That’s costing the federal government roughly $175 billion a year in revenue, according to the findings by a team of economists from academia and the IRS.

The data comes as Senate Democrats consider raising taxes on the ultrawealthy to reduce inequality and fund their legislative priorities. President Biden, in a sharp reversal from his predecessor, has signaled that he wants to raise taxes on the wealthy, corporations and estates.

The researchers say that years of IRS funding cuts, combined with the increased sophistication of tax evasion tactics available to the rich, have made shirking tax obligations easier than ever. And they say that these estimates probably understate the true extent of tax evasion at the top of the income spectrum.

To catch tax cheats and measure evasion, the IRS randomly audits returns. But such reviews turn up very little evidence of evasion among the extremely wealthy, in part because the rich use sophisticated accounting techniques that are difficult to trace, such as offshore tax shelters, pass-through businesses and complex conservation easements.

The IRS attempts to correct for this through a number of statistical methods. But the new study finds that even the IRS’s standard corrections underestimate the true extent of tax evasion among the rich.

The researchers were able to demonstrate this after the IRS and Justice Department initiated a crackdown on tax evasion in 2008. That effort led to the creation of the Offshore Voluntary Disclosure Program, which allowed taxpayers to disclose previously hidden offshore assets and pay a penalty in exchange for immunity from prosecution. According to the IRS, tens of thousands of taxpayers took advantage of the program before it shut down in 2018.

Hundreds of those taxpayers, as it turns out, had also been randomly audited before the creation of the program. The researchers matched those audits with the subsequent disclosures, and found that IRS auditors missed the offshore assets roughly 93 percent of the time.

These riches sheltered overseas, moreover, were concentrated almost exclusively among the very top earners.

The study also uncovered evidence of widespread underreporting of income among proprietors of pass-through businesses, whose revenue is taxed on their owners’ returns. “Up to 35% of the income earned at the top is not comprehensively examined in the context of random audits,” the authors found.

Factoring in underreporting from overseas tax shelters and pass-through businesses alone, the authors produced an estimate of the true distribution of tax evasion in the United States. Taxpayers in the bottom half of the income spectrum evade taxes on around 7 percent of their income. Among the top fifth of taxpayers, however, avoidance rises to around 10 percent.

But evasion peaks among the richest 5 percent, who have an income of at least $200,000 and who, as a cohort, capture more than one-third of total national earnings. Taxpayers in this group hide more than 20 percent of their income from tax collectors.

In total, nearly $1 out of every $12 earned in the United States is sheltered from federal income taxes because of the sophisticated evasion techniques of people earning more than $200,000 a year.

“The IRS needs a lot more resources from Congress,” said Daniel Reck, a lead author of the study, via email. He said the agency should “invest in more comprehensive examination strategies, involving audits of individuals, pass-through businesses, and other private entities (charities, trusts, etc.). It needs to hire and train large numbers of experts to conduct those more comprehensive examinations.”

“They can absolutely do all of this, but budget cuts have severely curtailed their ability to do it,” he added.

Since 2010, total funding for the IRS fell by about 20 percent, according to recent congressional testimony by IRS Commissioner Charles Rettig. The number of enforcement staff employed by the agency fell 30 percent over the same period.
Newsletter

Related Articles

0:00
0:00
Close
Women in Partial Nudity — and Bill Clinton in a Dress and Heels: The Images Revealed in the “Epstein Files”
US Envoy Witkoff to Convene Security Advisers from Ukraine, UK, France and Germany in Miami as Peace Efforts Intensify
UK Retailers Report Sharp Pre-Christmas Sales Decline and Weak Outlook, CBI Survey Shows
UK Government Rejects Use of Frozen Russian Assets to Fund Aid for Ukraine
UK Financial Conduct Authority Opens Formal Investigation into WH Smith After Accounting Errors
UK Issues Final Ultimatum to Roman Abramovich Over £2.5bn Chelsea Sale Funds for Ukraine
Rare Pink Fog Sweeps Across Parts of the UK as Met Office Warns of Poor Visibility
UK Police Pledge ‘More Assertive’ Enforcement to Tackle Antisemitism at Protests
UK Police Warn They Will Arrest Protesters Chanting ‘Globalise the Intifada’
Trump Files $10 Billion Defamation Lawsuit Against BBC as Broadcaster Pledges Legal Defence
UK Says U.S. Tech Deal Talks Still Active Despite Washington’s Suspension of Prosperity Pact
UK Mortgage Rules to Give Greater Flexibility to Borrowers With Irregular Incomes
UK Treasury Moves to Position Britain as Leading Global Hub for Crypto Firms
U.S. Freezes £31 Billion Tech Prosperity Deal With Britain Amid Trade Dispute
Prince Harry and Meghan’s Potential UK Return Gains New Momentum Amid Security Review and Royal Dialogue
Zelensky Opens High-Stakes Peace Talks in Berlin with Trump Envoy and European Leaders
Historical Reflections on Press Freedom Emerge Amid Debate Over Trump’s Media Policies
UK Boosts Protection for Jewish Communities After Sydney Hanukkah Attack
UK Government Declines to Comment After ICC Prosecutor Alleges Britain Threatened to Defund Court Over Israel Arrest Warrant
Apple Shutters All Retail Stores in the United Kingdom Under New National COVID-19 Lockdown
US–UK Technology Partnership Strains as Key Trade Disagreements Emerge
UK Police Confirm No Further Action Over Allegation That Andrew Asked Bodyguard to Investigate Virginia Giuffre
Giuffre Family Expresses Deep Disappointment as UK Police Decline New Inquiry Into Andrew Mountbatten-Windsor Claims
Transatlantic Trade Ambitions Hit a Snag as UK–US Deal Faces Emerging Challenges
Ex-ICC Prosecutor Alleges UK Threatened to Withdraw Funding Over Netanyahu Arrest Warrant Bid
UK Disciplinary Tribunal Clears Carter-Ruck Lawyer of Misconduct in OneCoin Case
‘Pink Ladies’ Emerge as Prominent Face of UK Anti-Immigration Protests
Nigel Farage Says Reform UK Has Become Britain’s Largest Party as Labour Membership Falls Sharply
Google DeepMind and UK Government Launch First Automated AI Lab to Accelerate Scientific Discovery
UK Economy Falters Ahead of Budget as Growth Contracts and Confidence Wanes
Australia Approves Increased Foreign Stake in Strategic Defence Shipbuilder
Former UK Prime Minister Boris Johnson proclaims, “For Ukraine, surrendering their land would be a nightmare.”
Microsoft Challenges £2.1 Billion UK Cloud Licensing Lawsuit at Competition Tribunal
Fake Doctor in Uttar Pradesh Accused of Killing Woman After Performing YouTube-Based Surgery
Hackers Are Hiding Malware in Open-Source Tools and IDE Extensions
Traveling to USA? Homeland Security moving toward requiring foreign travelers to share social media history
UK Officials Push Back at Trump Saying European Leaders ‘Talk Too Much’ About Ukraine
UK Warns of Escalating Cyber Assault Linked to Putin’s State-Backed Operations
UK Consumer Spending Falters in November as Households Hold Back Ahead of Budget
UK Orders Fresh Review of Prince Harry’s Security Status After Formal Request
U.S. Authorises Nvidia to Sell H200 AI Chips to China Under Security Controls
Trump in Direct Assault: European Leaders Are Weak, Immigration a Disaster. Russia Is Strong and Big — and Will Win
"App recommendation" or disguised advertisement? ChatGPT Premium users are furious
"The Great Filtering": Australia Blocks Hundreds of Thousands of Minors From Social Networks
Mark Zuckerberg Pulls Back From Metaverse After $70 Billion Loss as Meta Shifts Priorities to AI
Nvidia CEO Says U.S. Data-Center Builds Take Years while China ‘Builds a Hospital in a Weekend’
Indian Airports in Turmoil as IndiGo Cancels Over a Thousand Flights, Stranding Thousands
Hollywood Industry on Edge as Netflix Secures Near-$60 Bln Loan for Warner Bros Takeover
Drugs and Assassinations: The Connection Between the Italian Mafia and Football Ultras
Hollywood megadeal: Netflix acquires Warner Bros. Discovery for 83 billion dollars
×