The question of tax evasion vs. tax avoidance on clarkhoward.com

If you've seen any of The Bourne Identity films, you may recall actor Matt Damon going into a Swiss bank and being brought to a room to access a secret account. This may seem like a Hollywood dramatization, but there actually are secret accounts in Switzerland set up by people around the world for the purposes of hiding money.

A major Swiss bank called UBS had a special program where they hid money for wealthy Americans who were engaging in tax evasion. The U.S. government is now trying to compel the Swiss government and UBS to disclose the names of those Americans. Those who would be exposed have resorted to filing anonymous John Doe lawsuits to keep their identities secret so they can continue to evade the law.

Clark is no fan of our tax code, but he believes that if you create your wealth in the United States, you must follow the code whether you like it or not. He's also not mincing words when he says prison is suitable for these tax evaders.

Meanwhile, the whole question of tax evasion -- a criminal act where you purposely avoid taxes -- is important to distinguish from tax avoidance.

There is a point at which you can raise taxes so much that you mysteriously create no more revenue. Why is that? Tax avoidance. Clark believes that's what will happen with Pres. Obama's plan to raise tax rates on those who make $250,000 or more annually.

Here's a real world example: There's a side street near the studio where Clark broadcasts. It used to have every parking space filled because it was free to park. But now every space is empty. Some brainiac thought that parking meters would drive up revenue for the local government. Instead, nobody parks there anymore; they simply park further away where it's still free and walk to work.

This is the mistake we make in government when we raise taxes to bring in more money. The money doesn't show up because people change their behavior and use every possible legal means to get into a tax shelter.

Instead, we should have our tax rate at a level where people will be able to participate. What kind of rate do you think should be levied on those who make over $250,000? Be sure to vote in Clark's poll to let him know.

What others are saying

taxing over business increase
250,000 a year on tax increase is to soon depending on the type of money. a person with a self run business is still putting a good portion of their money into the business since it is doing good and they are trying to make it larger for the future. i say start the increases at 1 mil. by that point they are well established and can handle a slight increase. don't want to tax to much though to stunt their growth then will lose possible future jobs.
By amdiehl @ 08/20/09 08:59:09 PMreport abuse
Fair Tax
Come on Clark get on the band wagon. If we had FairTax we probably would not be in the mess we are in. We need small businesses and not government.
By Billie in Beavercreek @ 04/28/09 06:56:03 AMreport abuse
AN AMERICAN PROVERB
Show me a rich man...
and i'll show you a man who learned how to make others do his work for him.

There's nothing wrong with that, but this idea that the super rich worked "really hard" and "took risks that the average man doesn't have the capacity to take" is a joke. There are 24 hours a day and I'd be willing to bet there are quite a few minimum wage earners working longer, harder, more physically intensive days than you're working in exchange for a poverty lifestyle.

I own two business and I got rich by convincing people (with money) to do work for me at a cost that is less than what the task is worth. The more people you convince to do this for you, the richer you get. It's not rocket science. You just have to get a service or product people will pay good margins for, gain the capital necessary to convince people to work for you either providing a service or making things, and put them to work.

Stop whining about your tax bracket. And get back to work.
By Confucious @ 03/03/09 09:31:30 AMreport abuse
250,000 earned vs 25,000,000,000 unearned
Once again an attempt to lump together a working man who makes a million or so and the multi-billionaire who collects dividend checks. To Clark's point. Why does it( Higher Tax) work in other countries. R U shilling for a certain party?
By Anthony @ 03/03/09 08:40:55 AMreport abuse
TAX AVOIDANCE
LETS SEE HOW THIS WORKS I MAKE 250000 AND OWN A BUSINESS AND OBAMA WANTS TO TAX ME FOR MAKING 250000 SO I LAY OFF 2 PEOPLE WHO VOTE FOR OBAMA MAKE 240000 AND NOT GET TAX PROBLEM SOLVED
By PRESIDENTE CHAVES @ 03/03/09 07:31:41 AMreport abuse
Typo
...by "taking financial risks"...

Can't type today.
By Keith @ 03/03/09 12:35:43 AMreport abuse
...after the rich do WHAT??
Excuse me, but since when do the rich owe you (or anybody else) a bail out? I know several very wealthy people and they acquired their station in life by working their asses off and by financial taking risks (with their OWN money) that would give most of us ulcers.
By Keith @ 03/03/09 12:34:02 AMreport abuse
taxes
Obama should return to his economics class for more study! Who generates the jobs in this country....the lower wage earners or the top wage earners? It really is a no brainer!! Want more jobs and better pay Lower taxes Dont raise them..............
By florida @ 03/02/09 05:41:36 PMreport abuse
You CAN squeeze the rich aa little more...
@John Prospect

Hauser's "Law" has several flaws in it, suggesting that it might not hold up under closer scrutiny. Hauser did impressively use actual data (as opposed the laughable, Laffer curve). Nice done for that. However, he's taking 2 very broad data sets to make a very specific conclusion. Not safe. Why did the tax revenue stay the same, despite taxing the rich less? One possible explanation is that Social Security Revenue was robbed to cover that loss (and it was, there's clear data to show an increase in SS revenue).

So yes, tax the rich a bit more and let's try to put some more fiscal common sense into these budget plans after the rich bail us out (ie, use Social Security money for Social Security, and not as a piggy bank for other programs).
By Medical Student @ 03/02/09 03:05:54 PMreport abuse
not just for the rich
Tax avoidance isn't just for the rich, you realize. And taxes aren't burdensome just for the rich, either. Someone who isn't making enough to feed his or her family is less able to afford the 7% social security tax than I can my marginal rate of 35% combined federal and social security.
By rnb @ 03/02/09 12:30:46 PMreport abuse
You Can't Soak the Rich
Read this opinion article from the Wall Street Journal it contains data to support what Clark is saying. http://online.wsj.com/article/SB121124460502305693.html?mod=todays_us_opinion
By John Prospect @ 03/02/09 12:05:15 PMreport abuse
How about some priorities?

National defense.
Fully fund Social Security (as it was originally intended but cleverly stolen by the politicians)

I could give a rats axx about anything else the govt. wants to do for me. Stop the senseless spending and get out of my life. The Fair Tax would go a long way in solving ALL of our problems by keeping the politicians under control.
By anon @ 03/02/09 11:25:25 AMreport abuse
taxes
how about smoking taxes will help stop smoking and there health will go up that will help health care and i drink so let taxes drinkers that will help health car and taxes congree taxes and all the free be's
By julieana @ 03/02/09 11:08:33 AMreport abuse
Tax Evasion
Remember the 10% luxury tax in the early years of the Clinton adminnistration. It's unintended consequences put several boat builders in Maine and Massachusetts out of business. Yacht buyers went off shore for their purchases. No increase to government coffers.
By Sharon @ 03/02/09 11:08:04 AMreport abuse
It's not 39.6 plus 35
The proposed budget has a lot of lost write offs, including mortgage interest and charitable donations. Making the effective difference far greater by making more income taxable.

Also, don't discount the likelihood of the Social Security limit be raised or eliminated entirely, which could add another 6.2% onto things. A marginal increase of 45.8 vs 35 could make a huge difference in people's decisions.
By Tax Games @ 03/01/09 08:49:29 PMreport abuse
I agree Govt punishes people for being succesful
I never made anything above 28K a year in my lifetime in the 25 years I worked before my last job ended 2 1/2 yrs ago to Corp buyout. Even still, robbing Paul to pay Peter is not the solution. As mentioned in the below post, SSI kicking in to help drug abusers is just not right, but sadly is the norm here in the USA. Now that I don't have health ins and haven't since end of 2006 even if I wanted to get my butt to a dr to have many medical issues addressed *which needs to happen now* there is no way I can afford to do so. But my 19 yr old niece spits out a kid and gets all her bills paid for by taxpayers. Something needs to change but I don't see anything positive happening over the next 4 years. I'll die penniless most likely.
By Lisa Harper @ 03/01/09 06:56:27 PMreport abuse
Govt punishes people for being succesful
I don't make $250K, but do make a six figure income. There is no incentive to succeed any more as the gov. takes away from those who work and give it to those who do not. I have a cousin who fried his brain smoking pot and doing drugs and is now getting SSI the rest of his life. When I see my taxes and deductions taken away because I make too much, I get so angry. Look at the bailouts, stimulus bills and our govt. representatives...all rewards of no accountability. Makes you wonder why any of us DO work any more only to have it taken away and given to some Octuplet mom with eight kids.
By Mark L. @ 03/01/09 12:47:42 AMreport abuse
socialism
Only when we have a flat federal income tax from dollar one of gross income with no deductions, exemptions, tax credits, etc will we have a true discussion on what is the proper amount of money we want the politicians to collect.
Since the bottom 50% of people with income pay no taxes, and humans being selfish by nature, of course they will always vote to increase everyone elses taxes. But if everyone is in the same tax bracket, everyone will truly have some skin in the game.
Remember two things: the definition of socialism is shared misery. when the government gives something to one person they have to take it from someone else first.
By brian @ 02/28/09 03:45:15 PMreport abuse
Unintended Consequences 101 - the Crash Course
The top 1% of earners pay about 40% of income taxes collected. The top 5% pay 60% of income taxes. The lower 50% of wage earners pay less than 4% of the total!

So go ahead and punish the top 1%, after all they can afford it, right? Well think about this Mr. Poor Guy. If only a small fraction of the top 1% get fed up and decide to not pay their taxes anymore (leave the country, retire, tax dodges, etc.), then Uncle Sam might have to double the income taxes on people like you. That's right, if only 20,000 of the rich SOBs you love to hate drop off the tax rolls, YOUR income taxes will have to double to make up the difference.

President Feel Good doesn't know Jack about economics and I wonder if he could even run a hot dog stand profitably. But he has enough Americans believing his tax-the-rich snake oil that we are now set on a course that will kill the economic engine of this country.
By George @ 02/28/09 11:55:49 AMreport abuse
i'm with those who don't believe for a minute that 35->39.6 has that great an impact. The reason those cuts were written to expire in the first place was concern over the amount of revenue lost.
By anonymous @ 02/28/09 10:33:01 AMreport abuse
So you think you have rights, well where do you think you get your rights, eh? The government gives it to you, so they can take it away too, and you will be powerless to stop it. What you think you have some unalienable rights? OK, how can you prove it? Nah, it sounds self serving to me; hand over that fat wallet and shut up or will send you up the river for tax avoidance. Its for the general good of the government, thus good for the country, thus good for the people, thus good for you! You ungrateful...;-)
By el presidente @ 02/28/09 01:53:01 AMreport abuse
I Don't Get It
The government got no money on the parking lot when it was free and got no money when it installed parking meters. What's the revenue difference?

With his protests, methinks that Clark makes more than $250,000 a year.
By Aaron @ 02/28/09 01:49:08 AMreport abuse
Common sense just doesn't apply anymore
Just like demand and supply curves intersect indicating optimal volume, price and substitution curves can easily show just how far Government (or any business for that matter) can push the revenue stream before it falls off due to product overpricing. Governing officials just don't get this concept at all these days! Increasing tax rates will not always yield an increase in net revenue, and at a certain point, revenues will fall off dramatically if this strategy is used. It's simple: to increase economic activity and net taxation revenue, lower tax rates across the board and allow our free market economy to do the rest. Here in CA, Arnold is increasing taxation across the board, which will exacerbate our sluggish economy in the long run, as will Obama's plan of massive spending and taxation. I truly fear for our citizenry: this recession will easily last 5-7 years because of this misguided policy, mark my words. Is this all that our brightest, most educated minds can offer this country???
By JD Adams @ 02/27/09 10:12:59 PMreport abuse
Nice
Nice!
By anonymous @ 02/27/09 07:50:14 PMreport abuse
More Govt Funding via Less Taxes
It's an example of the Laffer Curve principle, where lower taxes can actually generate more government funding:

http://en.wikipedia.org/wiki/Laffer_curve
By anonymous @ 02/27/09 07:49:34 PMreport abuse
The government is basically a huge company? I strongly disagree. It is the opposite of a company, and thank goodness.
By anonymous @ 02/27/09 05:46:24 PMreport abuse
Government just doesn't understand
The parking meter story is a great example. I found that normally the bigger the company the easier for it to make poor decisions. And the government is basically a huge company. We need to start rewarding success instead of penalizing it.
By JD @ 02/27/09 05:41:39 PMreport abuse
Clark, please stick to consumer advice. Your politics embarrass you and undermine your credibility.
By david @ 02/27/09 05:12:04 PMreport abuse
"There is a point at which you can raise taxes so much that you mysteriously create no more revenue. Why is that? Tax avoidance. Clark believes that's what will happen with Pres. Obama's plan to raise tax rates on those who make $250,000 or more annually."

Does Clark Howard believe that "point" is not 35%, but it is 39.6%?

Idiot.
By david @ 02/27/09 05:07:49 PMreport abuse
Taxes
Fair Tax Now! I want the government out of my house, and will gladly pay even a 25%consumption tax for the privledge!
By Mike Way @ 02/27/09 04:25:46 PMreport abuse

taxing over business increase

250,000 a year on tax increase is to soon depending on the type of money. a person with a self run business is still putting a good portion of their money into the business since it is doing good and they are trying to make it larger for the future. i say start the increases at 1 mil. by that point they are well established and can handle a slight increase. don't want to tax to much though to stunt their growth then will lose possible future jobs.

By amdiehl @ 08/20/09 08:59:09 PMreport abuse

Fair Tax

Come on Clark get on the band wagon. If we had FairTax we probably would not be in the mess we are in. We need small businesses and not government.

By Billie in Beavercreek @ 04/28/09 06:56:03 AMreport abuse

AN AMERICAN PROVERB

Show me a rich man...
and i'll show you a man who learned how to make others do his work for him.

There's nothing wrong with that, but this idea that the super rich worked "really hard" and "took risks that the average man doesn't have the capacity to take" is a joke. There are 24 hours a day and I'd be willing to bet there are quite a few minimum wage earners working longer, harder, more physically intensive days than you're working in exchange for a poverty lifestyle.

I own two business and I got rich by convincing people (with money) to do work for me at a cost that is less than what the task is worth. The more people you convince to do this for you, the richer you get. It's not rocket science. You just have to get a service or product people will pay good margins for, gain the capital necessary to convince people to work for you either providing a service or making things, and put them to work.

Stop whining about your tax bracket. And get back to work.

By Confucious @ 03/03/09 09:31:30 AMreport abuse

250,000 earned vs 25,000,000,000 unearned

Once again an attempt to lump together a working man who makes a million or so and the multi-billionaire who collects dividend checks. To Clark's point. Why does it( Higher Tax) work in other countries. R U shilling for a certain party?

By Anthony @ 03/03/09 08:40:55 AMreport abuse

TAX AVOIDANCE

LETS SEE HOW THIS WORKS I MAKE 250000 AND OWN A BUSINESS AND OBAMA WANTS TO TAX ME FOR MAKING 250000 SO I LAY OFF 2 PEOPLE WHO VOTE FOR OBAMA MAKE 240000 AND NOT GET TAX PROBLEM SOLVED

By PRESIDENTE CHAVES @ 03/03/09 07:31:41 AMreport abuse

Typo

...by "taking financial risks"...

Can't type today.

By Keith @ 03/03/09 12:35:43 AMreport abuse

...after the rich do WHAT??

Excuse me, but since when do the rich owe you (or anybody else) a bail out? I know several very wealthy people and they acquired their station in life by working their asses off and by financial taking risks (with their OWN money) that would give most of us ulcers.

By Keith @ 03/03/09 12:34:02 AMreport abuse

taxes

Obama should return to his economics class for more study! Who generates the jobs in this country....the lower wage earners or the top wage earners? It really is a no brainer!! Want more jobs and better pay Lower taxes Dont raise them..............

By florida @ 03/02/09 05:41:36 PMreport abuse

You CAN squeeze the rich aa little more...

@John Prospect

Hauser's "Law" has several flaws in it, suggesting that it might not hold up under closer scrutiny. Hauser did impressively use actual data (as opposed the laughable, Laffer curve). Nice done for that. However, he's taking 2 very broad data sets to make a very specific conclusion. Not safe. Why did the tax revenue stay the same, despite taxing the rich less? One possible explanation is that Social Security Revenue was robbed to cover that loss (and it was, there's clear data to show an increase in SS revenue).

So yes, tax the rich a bit more and let's try to put some more fiscal common sense into these budget plans after the rich bail us out (ie, use Social Security money for Social Security, and not as a piggy bank for other programs).

By Medical Student @ 03/02/09 03:05:54 PMreport abuse

not just for the rich

Tax avoidance isn't just for the rich, you realize. And taxes aren't burdensome just for the rich, either. Someone who isn't making enough to feed his or her family is less able to afford the 7% social security tax than I can my marginal rate of 35% combined federal and social security.

By rnb @ 03/02/09 12:30:46 PMreport abuse

You Can't Soak the Rich

Read this opinion article from the Wall Street Journal it contains data to support what Clark is saying. http://online.wsj.com/article/SB121124460502305693.html?mod=todays_us_opinion

By John Prospect @ 03/02/09 12:05:15 PMreport abuse

How about some priorities?

National defense.
Fully fund Social Security (as it was originally intended but cleverly stolen by the politicians)

I could give a rats axx about anything else the govt. wants to do for me. Stop the senseless spending and get out of my life. The Fair Tax would go a long way in solving ALL of our problems by keeping the politicians under control.

By anon @ 03/02/09 11:25:25 AMreport abuse

how about smoking taxes will help stop smoking and there health will go up that will help health care and i drink so let taxes drinkers that will help health car and taxes congree taxes and all the free be's

By julieana @ 03/02/09 11:08:33 AMreport abuse

Tax Evasion

Remember the 10% luxury tax in the early years of the Clinton adminnistration. It's unintended consequences put several boat builders in Maine and Massachusetts out of business. Yacht buyers went off shore for their purchases. No increase to government coffers.

By Sharon @ 03/02/09 11:08:04 AMreport abuse

It's not 39.6 plus 35

The proposed budget has a lot of lost write offs, including mortgage interest and charitable donations. Making the effective difference far greater by making more income taxable.

Also, don't discount the likelihood of the Social Security limit be raised or eliminated entirely, which could add another 6.2% onto things. A marginal increase of 45.8 vs 35 could make a huge difference in people's decisions.

By Tax Games @ 03/01/09 08:49:29 PMreport abuse

I agree Govt punishes people for being succesful

I never made anything above 28K a year in my lifetime in the 25 years I worked before my last job ended 2 1/2 yrs ago to Corp buyout. Even still, robbing Paul to pay Peter is not the solution. As mentioned in the below post, SSI kicking in to help drug abusers is just not right, but sadly is the norm here in the USA. Now that I don't have health ins and haven't since end of 2006 even if I wanted to get my butt to a dr to have many medical issues addressed *which needs to happen now* there is no way I can afford to do so. But my 19 yr old niece spits out a kid and gets all her bills paid for by taxpayers. Something needs to change but I don't see anything positive happening over the next 4 years. I'll die penniless most likely.

By Lisa Harper @ 03/01/09 06:56:27 PMreport abuse

Govt punishes people for being succesful

I don't make $250K, but do make a six figure income. There is no incentive to succeed any more as the gov. takes away from those who work and give it to those who do not. I have a cousin who fried his brain smoking pot and doing drugs and is now getting SSI the rest of his life. When I see my taxes and deductions taken away because I make too much, I get so angry. Look at the bailouts, stimulus bills and our govt. representatives...all rewards of no accountability. Makes you wonder why any of us DO work any more only to have it taken away and given to some Octuplet mom with eight kids.

By Mark L. @ 03/01/09 12:47:42 AMreport abuse

socialism

Only when we have a flat federal income tax from dollar one of gross income with no deductions, exemptions, tax credits, etc will we have a true discussion on what is the proper amount of money we want the politicians to collect.
Since the bottom 50% of people with income pay no taxes, and humans being selfish by nature, of course they will always vote to increase everyone elses taxes. But if everyone is in the same tax bracket, everyone will truly have some skin in the game.
Remember two things: the definition of socialism is shared misery. when the government gives something to one person they have to take it from someone else first.

By brian @ 02/28/09 03:45:15 PMreport abuse

Unintended Consequences 101 - the Crash Course

The top 1% of earners pay about 40% of income taxes collected. The top 5% pay 60% of income taxes. The lower 50% of wage earners pay less than 4% of the total!

So go ahead and punish the top 1%, after all they can afford it, right? Well think about this Mr. Poor Guy. If only a small fraction of the top 1% get fed up and decide to not pay their taxes anymore (leave the country, retire, tax dodges, etc.), then Uncle Sam might have to double the income taxes on people like you. That's right, if only 20,000 of the rich SOBs you love to hate drop off the tax rolls, YOUR income taxes will have to double to make up the difference.

President Feel Good doesn't know Jack about economics and I wonder if he could even run a hot dog stand profitably. But he has enough Americans believing his tax-the-rich snake oil that we are now set on a course that will kill the economic engine of this country.

By George @ 02/28/09 11:55:49 AMreport abuse

i'm with those who don't believe for a minute that 35->39.6 has that great an impact. The reason those cuts were written to expire in the first place was concern over the amount of revenue lost.

By anonymous @ 02/28/09 10:33:01 AMreport abuse

So you think you have rights, well where do you think you get your rights, eh? The government gives it to you, so they can take it away too, and you will be powerless to stop it. What you think you have some unalienable rights? OK, how can you prove it? Nah, it sounds self serving to me; hand over that fat wallet and shut up or will send you up the river for tax avoidance. Its for the general good of the government, thus good for the country, thus good for the people, thus good for you! You ungrateful...;-)

By el presidente @ 02/28/09 01:53:01 AMreport abuse

I Don't Get It

The government got no money on the parking lot when it was free and got no money when it installed parking meters. What's the revenue difference?

With his protests, methinks that Clark makes more than $250,000 a year.

By Aaron @ 02/28/09 01:49:08 AMreport abuse

Common sense just doesn't apply anymore

Just like demand and supply curves intersect indicating optimal volume, price and substitution curves can easily show just how far Government (or any business for that matter) can push the revenue stream before it falls off due to product overpricing. Governing officials just don't get this concept at all these days! Increasing tax rates will not always yield an increase in net revenue, and at a certain point, revenues will fall off dramatically if this strategy is used. It's simple: to increase economic activity and net taxation revenue, lower tax rates across the board and allow our free market economy to do the rest. Here in CA, Arnold is increasing taxation across the board, which will exacerbate our sluggish economy in the long run, as will Obama's plan of massive spending and taxation. I truly fear for our citizenry: this recession will easily last 5-7 years because of this misguided policy, mark my words. Is this all that our brightest, most educated minds can offer this country???

By JD Adams @ 02/27/09 10:12:59 PMreport abuse

Nice

Nice!

By anonymous @ 02/27/09 07:50:14 PMreport abuse

More Govt Funding via Less Taxes

It's an example of the Laffer Curve principle, where lower taxes can actually generate more government funding:

http://en.wikipedia.org/wiki/Laffer_curve

By anonymous @ 02/27/09 07:49:34 PMreport abuse

The government is basically a huge company? I strongly disagree. It is the opposite of a company, and thank goodness.

By anonymous @ 02/27/09 05:46:24 PMreport abuse

Government just doesn't understand

The parking meter story is a great example. I found that normally the bigger the company the easier for it to make poor decisions. And the government is basically a huge company. We need to start rewarding success instead of penalizing it.

By JD @ 02/27/09 05:41:39 PMreport abuse

Clark, please stick to consumer advice. Your politics embarrass you and undermine your credibility.

By david @ 02/27/09 05:12:04 PMreport abuse

"There is a point at which you can raise taxes so much that you mysteriously create no more revenue. Why is that? Tax avoidance. Clark believes that's what will happen with Pres. Obama's plan to raise tax rates on those who make $250,000 or more annually."

Does Clark Howard believe that "point" is not 35%, but it is 39.6%?

Idiot.

By david @ 02/27/09 05:07:49 PMreport abuse

Taxes

Fair Tax Now! I want the government out of my house, and will gladly pay even a 25%consumption tax for the privledge!

By Mike Way @ 02/27/09 04:25:46 PMreport abuse

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Feb 27, 2009 -- The question of tax evasion vs. tax avoidance

What others are saying