@prasoon informal economy tends to be a bit of a loaded term that can mean anything from, a job that is illegal and thus can not be taxed in any meaningful way, to jobs that technically require you to post your wages, but easily slip under the radar (such as washing windows on a street corner).

Can you give examples of jobs you consider part of the informal economy that would not be tax avoidance?

@freemo
This is the subject matter of the research that npr interview covers. It is a complicated question is what the researcher say. That's why I think you might be comparing 2 different things that are not really disjoint to make the claim that you did.

@prasoon Do you happen to have any better figures to compare?

I've seen different figures to approach this problem and while admitidly they do vary wildly it seems in most cases the tax evasion of the middle class and poor tends to be much higher than that of the rich.

If you think about it makes sense really. If you dont make much money its pretty easy to get away with working under the table. No one will ever even know. Ont he flip side its hard to do when your dealing in billions. Just think of all the lower income people you know who work under the table and cheat on 100% of their taxes. Rich people lying on taxes happens too sadly, but they have a lot more eyes on them and a lot more to risk, so they would naturally do less of it.

Obviously if you have any figures that might contradict what I'm saying I'd love to see it.

@freemo
I'm thinking of 2 models - one with a long tail (most wealth with poor) and another with a big sharp hump of the rich. How we tax, target the IRS resources, exempt should depend on what the economy looks like.
But then, I'm not an economist so I rely on mathematics which is not always very popular with at least the economist friends I have :)

@prasoon I am pretty strong in math as a data scientist and while not an economist I do study that aspect of it as well.

I'd be curious to hear of any mathematical models for an ideal economy you have floating around in your head.

@freemo
I think modeling an economy as a graph where each entity is a node and the flow of currency and resources as the measure of its health makes a lot of sense to me.
When the flow is restricted we have few leaves dying. Our policies, then, just need to ensure that there's a healthy flow and no hoarding (of wealth and/or resources).

@freemo
This approach would be able to accommodate both data driven analysis of modern economics and the anecdotal references provided by anecdotal evidence of other social sciences and anthropologists.
A sort of free market but free of corporate control as well.

@prasoon I can see where your going with that. Its interesting because im in the middle of developing a private economy right now (a cryptocurrency but a bit more specialized than a general currency).

The biggest question on my mind is how to model the internals of the system to help encourage a healthy economy. When do we produce new money, how do we determine who gets that new money, and how do we do that in a way that ultimately responds to the health of the economy as we do.. all in an automated way, therefore needs a strict mathematical representation.

So something like you suggest is worth considering, but its debatable if hoarding money is even damaging in and of itself (it can be at certain extremes of course, but may not be a big deal in moderation).

For me the flow of money itslef is misleading because money is not a fixed quantity of wealth. It seems more valuable in my mind to be able to quantify where and how wealth is being generated and try to maximize the generation of wealth, rather than the mobility of bank notes.

@freemo
Interesting. Have you read "The future of money"? It makes some interesting points although it's an old book.
What kind of future are we trying to build would be a better way to converge on the question you ask. This problem, like all real world problems, need to take into account the complexity of a chaotic system.

@prasoon I dont think I have, though I do have this bad habbit of not remembering i read a bok until i start reading it again :)

@prasoon by thee way you gave a very specific figure earlier that 70% of tax evasion in the formal economy is the rich. Do you have a source for that figure specifically?

@prasoon Or did you mean the 70% figure from my own source?

Because that would be 70% of incidents of underreporting. Because that figure isnt really the same as it isnt saying 70% of taxes not paid in terms of dollars and cents. It is counting simply number of incidents that are identified which is a bit misleading here.

@freemo
Yes, my bad. This one.

@prasoon Ahh ok

@freemo
This is from the other article on your original toot.

@freemo
You are right about money vs wealth. Wealth generation is certainly the key here. Much has been written about it no? This is where the definition of "success" constructed from the data might often become a proxy for the researcher's own privilege.
There's a political science principle that's used to ensure "fairness" in the system one is trying to construct - assume that you could be randomly allotted to any segment.

@prasoon Much is written about wealth generation yes but still a bit shaddy to identify consistently analytically (looking at money flow alone)

@freemo @prasoon make it like starcraft where having more money in the bank in the long term is a sign of failure not success.

@prasoon Before I respond to this see my earlier question.

@prasoon If you truly just mean the whole of the informal economy.. namely those businesses the government cant regulate because there is no paper trail.

That absolutely is still tax avoidance. If someone is washing windows on a street corner they are legally obligated to report their income ont heir tax returns. But since ther eis no paper trail if they lie, while technically illegal, they can be certain they wont be persecuted. So they can easily get away with it.

But it is still absolutely tax evasion and is technically illegal even though impossible to actually enforce.

Just because they can get away with it doesnt make it any less of a Tax Evasion.

@freemo
Precisely. This is exactly what's explained in the npr interview with similar anecdotes.
My assertion is that the rich of the informal economy are responsible for more tax avoidance than the poor in the informal economy just like the rich in the formal economy are responsible for 70% of the tax evasion.

@prasoon Any sources to back that up by chance? Personally i doubt the rich even engage all that much in the informal economy.

@freemo
I guess we'd not know conclusively but, I'll try to look it up.
One way to take a guess would be to understand the supply and demand side of the informal economy - when I, as a rich person, buy an expensive illegal substance I contribute to it, even though it is a tiny portion of my income.
If we include gig economy here, we might get some very interesting things as well.

@freemo "According to our next guest, the shadow economy - or informal economy - accounts for some $2 trillion in trade."
You read that as "taxes avoided"?

Hard to say what an average tax rate would be for that trade, but given that you are talking about middle to lower class, it would likely be below 25%
https://www.thebalance.com/what-the-average-american-pays-in-taxes-4768594

So, your post should actually say "interesting how the tax avoided by the 1% is higher than tax avoided by way more people who struggle way more."

Right?

@stragu My fault, yea your right. Point conceded.

@timorl Im not sure the size of the population itself is so important as the amount of money they represent. The top 1% in the USA IIRC represents 50% of the wealth. so seems like a fair cut off point IMO.

@freemo Yeah, but this is also part of the problem (at least from the point of view of people who complain about it).

@timorl The question I really wanted to answer,a nd i cant really say for sure yet as the data is spotty... who avoids more taxes, the rich or the poor/lower class..

On the one hand when the rich avoid taxes they are probably avoiding it by the millions.

On the other hand I know tons of lower class individiuals who all work under the table, I think the figure was 45% IIRC of all americans work under the table, mostly lower class individuals I would think.

So it really wouldnt surprise me if the lower class avoid more taxes than the rich, especially considering that most rich I know are kinda anal about making sure they dont do anything illegal on their taxes.

But I really don know and I'd like that answered. Any secondary problems (like the one you pointed out) for me is largely a tangent to that point. Worth discussing surely, but a separate topic mostly.