Do Tax Resisters End Up Ironically Paying More Money?

A common argument against tax resistance goes something like this: The government will add penalties and interest and such to the amount you refuse to pay, and when they eventually wring the money out of you, in the end you’ll have given even more financial support to the government than you would have if you’d just paid up in the first place.

Today I’ll show you some evidence that I hope will convince you that this is not a very good argument.

Lots of people don’t pay the IRS what the agency thinks they should. The IRS has tried to figure out where this missing money is hiding, but their methodology isn’t all that great, and it’s not an easy mystery to solve.

Their best guess is that the vast majority of missing taxes comes from “underreporting” — that is, taxable activities that the IRS never becomes aware of. For example: if you placed a bet with a friend on the outcome of the Super Bowl, the winner of that bet should have added the amount won to their income and should have paid taxes on it, according to the IRS anyway. Most people don’t go out of their way to report taxable transactions like these that the IRS wouldn’t learn about on its own, and so a lot of these transactions never get taxed and they stay in the “underground economy.”

An estimated 84% of the “tax gap” comes from unreported taxable activities like these. Another 6% comes from taxable activities the IRS does learn about, but for which the responsible party never bothers to file a tax return. The remaining 10% comes from people whose tax debt is registered on paper according to Hoyle, but who never get around to forking over the money.

84% of the tax gap comes from underreporting; 10% from non-filing; and 6% from underpaying

According to IRS financial statements for , there were at that time about $380 billion in outstanding unpaid taxes that it knew about. This includes about $205 billion in interest & penalties added to the originally-due taxes, but it does not count any taxes that people have thusfar successfully evaded by keeping out of the IRS’s view — that is, all the stuff in the 84% blue area above. It also doesn’t include amounts that the agency can no longer pursue because the statute of limitations has expired.

Of that $380 billion, the agency considers $116 billion to be “currently uncollectible” (“primarily because of the economic situations of the taxpayers”). Another $86 billion is something called “compliance assessments” — which I think means the IRS tells a taxpayer who hasn’t filed a return (or a fully-revealing one) what the agency suspects the taxpayer would have owed if they had filed accurately, but the taxpayer isn’t going along with it and the controversy is still in limbo. The agency doesn’t have much confidence in collecting this money either. There is also a category called “write-offs” that totals $138 billion. This is tax debt that is hopelessly uncollectible because the taxpayer is bankrupt, insolvent, dead, vanished into thin air, or something of that sort. That only leaves about ten percent of the total that the IRS considers to be collectible and includes as a potential asset on its financial statements.

So to $175 billion in unpaid taxes, the IRS has added $205 billion in interest & penalties, but it only expects to collect $40 billion of the total (in recent years it has actually collected closer to $46–49 billion per year by means of its enforcement arm, so it may somewhat exceed its expectations). This I think shows conclusively that people who don’t pay their taxes do not, in the aggregate, ironically end up paying more to the government.

Of the $380 billion in outstanding federal taxes, only about $40 billion is considered collectible; $116 billion is considered uncollectible, $138 billion has been formally written off, and $86 billion is assessed but is considered unlikely to be realized.

of the $380 billion owed to the IRS in back taxes, the agency only hopes to collect the $40 billion green slice of the pie

For tax resisters — who are typically alive, solvent, and often have seizable assets and income streams — the news isn’t quite as good as this chart would suggest. But even from juicy targets like us, the IRS fails to seize enough money in penalties and interest from some of us to make up for the money it fails to seize from those of us it lets slip through its clutches.

An informal survey of war tax resisters a few years back, for example, found that the IRS had successfully seized only about 25% of what those resisters had refused to pay.

In addition, it is costly for the agency to deploy its collection apparatus: sending out all of those letters, filing liens & levies, managing the associated bureaucracy — all of that costs money. The IRS spends about $5 billion dollars on enforcement (including investigations, audits, and collection), and so resisters contribute to this additional cost of the government conscripting our support.

So if you are hesitating to refuse to pay taxes because you worry that by doing so you may inadvertently swell government coffers… I hope this has reassured you that in the aggregate, tax resisters do indeed cost the government money.