Rich people dodge far more tax than previously thought, economists find

Wealthy people are dodging even more tax than previously thought, according to new research.

The wealthiest 0.01 per cent evaded 30 per cent of their personal taxes on average, compared to just 3 per cent in the population as a whole, economists Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman found.

They studied data from the Panama Papers and Swiss Leaks which contain millions of documents revealing offshore activities.

Because these leaks contain only a small snapshot of the shady world of global tax avoidance, the researchers needed another source in order to come to a more general conclusion.

They found it in Norway, Sweden, and Denmark where transparency laws require unusually detailed disclosure of income and tax records.

By combining the datasets they were able to make an estimate of the true size and scope of tax evasion. As the graph below shows, the richer someone is, the higher proportion of tax they evade, by many multiples. The poorest groups are on the left, the richest on the right. The last five points on the graph represent the top one per cent of the income distribution.

(Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman)

In the past it has been argued that average citizens are just as likely to not pay their dues as the super-rich, by for example, paying cash in hand for building work, buying goods on the black market or underestimating earnings on a personal tax return. The findings counter that position.

The data, of course, only relates to three Scandinavian countries but the authors of the research posit that the scale of tax evasion is likely to be worse in more unequal countries such as the US and UK.

It is also likely to be boosted in those countries by the fact that disclosure rules are much lighter. The random audits that occur in the UK, for example, do less to discourage tax evasion than the more stringent regimes of Denmark, Norway and Sweden, the authors suggest.

Courtesy Newsrep