VAT Evasion Explodes in Britain

Some bits and pieces from here and there:

  • In some countries, a value added tax is a major source of government revenue, and there are periodic calls (for instance the so-called FairTax) for something similar in the U.S. For this reason, I like to keep my eyes peeled for news about value added tax evasion and resistance strategies. The Telegraph reports that VAT evasion “has exploded” in Great Britain in recent years. It attributes half of this to “professional fraudsters” and half to “general non-compliance and deliberate evasion by legitimate businesses.” Organized evaders use a technique known as “missing trader” to avoid paying this tax to the government, or, in the case of the “carousel” variety of the scheme, to double the gains by applying for tax refunds on taxes that were never paid in the first place.
  • All of the thunder and lightning about taxes and the “fiscal cliff” recently resulted in a major tax bill that ended up being so much about reestablishing the status quo that I’ve had little to say about it here. The major effect on folks like me who are trying to stay below the income tax line is that our payroll and/or self-employment taxes are going back up to where they were a couple of years ago. If you’d like to investigate further and see if there have been any tweaks to your favorite deductions or credits, take a look at the report Tax Provisions in the American Taxpayer Relief Act of from the Tax Policy Center.
  • The Mackinac Center for Public Policy compares the reported tobacco smoking rate in various states with tobacco sales in those states, and how this comparison changes as the tobacco tax rates change in those states and in neighboring states, to estimate how tobacco taxes contribute to tobacco smuggling. Some states, the Center says, have raised their tobacco taxes to levels that amount to a policy of “prohibition by price,” and smuggling has risen to match — New York’s huge $4.35/pack cigarette tax is matched by the Center’s estimate that fully 60.9% of the cigarettes smoked there are smuggled in from other states.
  • When the IRS tries to crack down on tax evasion, their gains from increased revenue from enforcement can be offset by the loss of goodwill from innocent taxpayers who get caught in the net or who have to endure more paperwork or encounters with a suspicious bureaucracy. For a good example of how the IRS turned a loyal taxpayer into an enemy, read David Hanger’s letter It Is Not Ineptness of Incompetence, the IRS Is Stealing from You. The government relies on voluntary taxpayer compliance much more than on IRS enforcement and threats to fill its coffers, and so stories like this may represent a big threat.
  • The Early Retirement Extreme blog now has a wiki that will capture in a more encyclopedic fashion the wisdom of folks who are using voluntary simplicity principles to escape the rat race in style.