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Comment by majormajor | Hacker News Reader

> Third, the payoff for a billionaire successfully cheating on their taxes is much higher than for a non-billionaire. And finally, even if a billionaire does get caught and pays all their back-taxes with penalties, they will still most likely be a billionaire and be able to sustain a pretty posh lifestyle.

This is the weird part to me. I don't think the marginal payoff is higher for a billionaire, other than in ego or ideological or other less-rational terms.

Someone making 50K who scams an extra 2K out of their taxes has gotten themselves a pretty big boost to their disposable income. While a billionaire already has millions to play with...

I would support higher and harsher penalties for larger absolute amounts of tax fraud, though, because you're depriving your fellow citizens of more if you're keeping larger $$ amounts.

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Yeah, it's not intellectually honest to argue "a billionaire committing a billion-dollar tax fraud has a lot to gain, because a billion dollars is a lot of money, but a billionaire getting fined a billion dollars is nothing to him, because diminishing marginal utility."

How is it dishonest? They have a lot to gain financially, and the penalty for doing so (although steep) is not significant enough to have a material impact on the person committing the fraud. That seems like the exact moral hazard that creates this situation.

For a poor person, the same situation is likely life-altering in either case.

> How is it dishonest?

Either a billion dollars is a lot, or it is not.

It's clearly both. The behavior of the billionaires makes that clear. Billions of dollars is enough incentive to commit tax fraud, and (hundreds of) millions of dollars in fines has not been enough to disincentive tax fraud.

$1,000 to you is (probably) not a lot. For someone in a third world shithole it's several years to a life time of earnings. Perspective matters when determining if something is "a lot" or not.

Well, yeah, obviously.

But using in the same sentence as both, depending on the point you're trying to prove, is a little dishonest.

As MrPatan pointed out in a sibling comment, the sentence is about the same person.

1 billion dollars to someone who has 2 billion dollars is not a lot.

1 billion dollars to someone who has 0 dollars is a lot.

Can you edit your comment to add "To the same person". Some people replying seem to be having a very hard time with it.

Keeping a billion for certain is not equal to a 1% chance of paying a billion if, and only if, getting caught. That creates an incentive.

To the latter part of top post, for a billionaire utility value and expected value are equal as if he gains or loses a few million it doesn't matter. For smaller player they can be completely different, yes a few thousand can be a good income gain, but getting caught can mean they get completely ruined.

So if expected value of tax cheating in vacuum is - lets imagine - 20% of the amount of taxes cheated, billionaire should cheat on taxes in every situation, as they simply gain 20% on average. Smaller player shouldn't, as even though their expected value is the same, their utility value can be completely different as they might take a risk of ruining their business and losing future income and hugely lowering their quality of life.

edit: and also for small amounts the way down is much harsher on the utility value, so being a favorite to gain 10k might not be worth it, if the possible -15k means your lifestyle suffers.

I think you're leaving out enforcement costs.

If you're little and scamming a few $k here and there, the ROI (Return on Investigation) for the IRS to go after you is tiny. It's probably not worth assigning an investigator.

If you're HUGE and scamming billions, the ROI is there but you also have the capabilities to defend yourself, obfuscate things, etc so it's unlikely they can destroy you. Therefore, it's not one investigator but a team with forensic accountants, potentially informants, etc.

For everyone else, the danger is in the middle. Where you have enough that you can lose a life-destroying amount but you don't have the means to protect yourself. That is a great target for investigators.

In short, as you gain more, be careful and have a good accountant who follows the rules to the best of their ability.. until you can make the rules.

Oh crap.

> Someone making 50K who scams an extra 2K out of their taxes has gotten themselves a pretty big boost to their disposable income.

another way to think of this is in the difference of relationship to money between a billionaire and a in comparison poor person. give 2K to the avg Joe/Jane they'll circulate it back into the market by purchasing while the billionaire sees themself as a "steward of their fortune" and who would keep in their accounts. (also the reason why trickle-down Reaganomics doesn't work).

Also to a billionaire there is a high chance justifying tax-avoidance (and evasion) is easier since they anyway do it using multinational corporations. And obvs. it's more work to go after big cases where the fight is about proofing overstepping the line between avoidance/evasion while with poor people the case is usually about just evasion.

I'll continue to recommend this here whenever the topic comes up: https://en.wikipedia.org/wiki/Treasure_Islands:_Tax_Havens_a...

To a person dealing with the IRS over millions, a whole team of lawyers at $1k/hour each is a drop in the bucket. to a person who cheated uncle sam of $2k, its cheaper to settle (even with penalties) than to hire a single lawyer to represent them. That is why the IRS loves going after the little guys, they don't fight back.

They often don’t fight back because it’s often a fairly clear-cut matter where the taxpayer is in the wrong and both sides just move to resolution.

Loves is a strong word. I think it makes more sense to say that the IRS doesn't have the budget or resources to go after the big players. Yes, people cheating only $2k probably won't pay for a lawyer but from the IRS side it's just much simpler to analyze and prove that person is in the wrong. See this article from ProPublica https://www.propublica.org/article/how-the-irs-was-gutted

>This is the weird part to me. I don't think the marginal payoff is higher for a billionaire, other than in ego or ideological or other less-rational terms.

It is higher in a very real and measurable way: it's way more money.

Doesn't have to higher as a "marginal payoff". (Besides that would imply that if the billionaire didn't get any real benefit or pleasure from the non-taxed money, they should face no penalty).

Billionaires think differently about money than non-billionaires. Ordinary people use money to exercise control over their own lives. Billionaires use money to exercise control over other people's lives, and when that is your goal, a few extra billion dollars means a few extra tens of thousands of people you can put on payroll to do your bidding, whatever that might happen to be. It lets you do things like run for president or go into space. It's not my cup of tea, but it's not fair to call it "irrational". Some people just want different things.

It might be rational to want those things. But I think I would argue that people largely shouldn't be able to have them.

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