Lost amidst the flap over the fact that Apple Inc. did not pay much in taxes, anywhere, is the nature of the claims of governments on the rightfully-earned incomes of their citizens.
The notion of a “tax gap”, the difference between what tax collectors think they should receive & what taxpayers willfully submit, implies a democratic disconnect.
It turns out that the sums can be substantial. For example, the IRS estimates this gap in tax revenues for the US federal government is about $290 billion each year.
Many public officials suggest that shortfalls in tax revenues reflect a tendency toward criminality or unprincipled greed of citizens that ignore their legally-imposed obligations. While pubic officials have in mind what they deserve to receive, citizens assess whether their tax bill is reasonable in relation to the quality of the services they receive.
Most politicians insist that closing the tax gap is a good way to fund new spending. Indeed, increasing compliance is often prescribed by the IMF to governments that turn to it for assistance in sorting out fiscal imbalances.
Several issues are being overlooked in those that would seek to close this gap.
First, there is the problem of corruption, inefficiency & waste associated with government spending. As such, many taxpayers balk at paying more to the tax authorities. No one should anyone feel compelled to pay more until government officials curb waste & fraud. (The losses to fraud involving MediCare & MediCaid are about the same as the reduced spending due to the so-called “sequester”!)
Second, the increased vigilance by tax authorities to close the tax gap would inevitably lead to a reduction in freedom of action.
Third, the focus tends to be on the presumed social benefits of more funds being handed over to government. As such, the increased costs incurred by taxpayers in complying more fully with the tax code tend to be overlooked. If the gains in tax revenues from increased compliance are less than the higher costs incurred by citizens, there would a net social loss.
Taxes are not about funding “essential” government goods or services that might not be provided through private actions in markets. Tax policies are part of a redistributive game that allows political support to be purchased or rewarded.