Now that we've all sent our tax returns off to the Internal Revenue Service, it is time to sit back and congratulate ourselves for having been totally honest and forthcoming and to think unkind thoughts about those who were not. Turns out, incidentally, that two kinds of people are most likely to try to cheat the IRS: those who don't make very much money and those who make a lot.
Dr. Ann D. Witte, associate professor of economics at the University of North Carolina, has just produced a study using old IRS and other more recent data to conclude that middle-income families are most likely to file honest returns. Part of that, she said in an interview, is because most middle-income employes have the affliction of working for employers who must report how much salary they paid and to whom. "It's hard to argue about your income at an audit when there's a W2 Form showing the total," she said.
Low-income people, particularly those providing services, are often paid in hard-to-trace (and thus easy-to-hide) cash. High-income people, particularly self-employed professionals such as doctors and lawyers, are not burdened with those unfortunate W2s and can find ways to disguise their income. "We know that higher audit rates lead to higher compliance rates," Witte said, which raises the question of whether the IRS should cut the number of audits it performs, as is currently the plan.