Tax Evasion by the Wealthy: Measurement and Implications
This paper combines random audit data with new data on offshore bank accounts to estimate the size and distribution of individual income tax evasion in the United States. We show that evasion through offshore financial institutions is highly concentrated at the very top of the income distribution, and that random audits virtually never detect this form of evasion. Data from random audits alone suggests an increasing rate of tax evasion through the income distribution up to the 99th percentile, but a sharp drop-off in the rate of evasion by income within the top 1 percent. Accounting for evasion through offshore financial institutions partly reverses this drop-off at the top, leading us to revise upwards random-audit estimates of the tax gap for very-high-income earners by 4 to 6 percentage points.