This chapter outlines the advantages and limitations of both third-party and first-party reporting requirements. We begin by evaluating the Biden Administration’s 2021 bank information reporting proposal as an example of a third-party information reporting reform. Then, we provide a model for introducing first-party information reporting from high-end taxpayers regarding their finances through an annual wealth reporting form, which we call the Annual Net Asset Statement. Next, we introduce a hybrid system that incorporates both first- and third-party information reporting and explain how this system would have offered an alternative approach to the Biden Administration’s proposal for reporting inflows and outflows from financial accounts. Finally, we describe how this framework can help improve the tailoring of penalties for noncompliance in two areas: with information-reporting obligations, and in the use of audit resources. We explain how a means-adjusted approach can improve the operation of these information-reporting rules and complement the activity-based focus in current law.

The Introduction sets the stage by describing the intense focus on abusive tax avoidance and tax evasion by the rich among political figures, legal scholars, and the general public. The Introduction also describes the stakes for the tax system in addressing high-end tax noncompliance. It then provides an overview of two conventional approaches to the problem of high-end tax noncompliance: increasing IRS funding and “activity-based rules” targeting specific strategies that enable tax avoidance and evasion. The Introduction describes the book’s argument that both of these responses are incomplete solutions. It then describes the overlooked role that tax compliance rules – which govern critical aspects of tax administration and enforcement but that currently apply to all taxpayers without regard to their income or wealth – play in enabling tax avoidance and evasion by the rich. The Introduction provides a summary of the core argument and contribution of the book: that policymakers should introduce a system of means-based adjustments to the tax compliance rules for high-end taxpayers.

This chapter addresses the weaknesses of tax penalties in current law as deterrents of high-end tax noncompliance and describes how Congress could introduce tax penalties that vary depending upon taxpayers’ means. The chapter begins with a discussion of the possible motivations for individual tax compliance, including potential adverse consequences of noncompliance and, specifically, civil tax penalties. It then considers why current civil tax penalties often fail to deter high-end tax noncompliance. Finally, the chapter presents means-adjusted tax penalties as a new approach to the design of civil tax penalties, illustrates this approach with several examples, and addresses additional concerns.

How much tax revenue is lost each year as a result of noncompliance? How much of this lost revenue is from the richest taxpayers? How do the rich avoid paying taxes and why does it matter? This chapter considers these basic and important questions. The answers explain our motivation for writing this book and provide a starting point for the arguments that follow. This discussion also begins to explain why this book focuses on high-end tax noncompliance as a distinct challenge for the tax system. To answer these questions, we begin by describing exactly what we mean by tax noncompliance. The discussion then presents research findings on the scope of tax noncompliance and how it is shared across the income distribution. It then explains how high-end taxpayers can often avoid paying the taxes they owe by taking advantage of strategies that are not available to low- and middle-income taxpayers. Finally, we discuss why high-end noncompliance is harmful to the tax system, and why policymakers should treat it as a pressing challenge.

Policymakers face many design possibilities when implementing means-adjusted tax compliance rules. This chapter serves as the bridge from theory to legal design. We begin this transition by identifying some of the key design considerations that policymakers should take into account when attempting to introduce means adjustments to the tax compliance rules. In general, we propose means adjustments to certain tax compliance rules that favor high-end taxpayers when they are applied the same to everyone. These adjustments should also be designed to preserve core prerequisites of procedural fairness, and should also include an underpayment-based threshold to exempt less consequential tax offenses from these heightened tax compliance rules.

The introduction chapter lays the groundwork for understanding the intricate relationship between Congress and information acquisition, particularly through committee hearings and witness testimonies. Highlighting the pivotal role of information in shaping legislative decisions, the chapter probes into the challenges faced by Congress in navigating the complex landscape of external expertise within a politically charged environment. The chapter delves into the critical questions driving the book’s exploration: How does Congress acquire information, and what factors influence the selection and content of information provided by external witnesses? It introduces the overarching themes of partisan incentives, institutional conditions, and the strategic nature of information acquisition, aiming to dissect their impact on legislative processes. By providing a comprehensive overview of the book’s scope, methodology, and key theoretical insights, the introduction sets the tone for a deep dive into the dynamics of congressional information-seeking behavior.

In this chapter, we examine how the politics of interbranch relations between the legislature and the bureaucracy affect the invitation of bureaucratic witnesses to hearings and how Congress can use hearings to control executive branch influence. We focus on the presence of divided government – when the party controlling Congress is not the party that controls the White House. We find that during periods of divided government, committees invited relatively fewer bureaucrats to testify; instead, they invited relatively more witnesses from think tanks, universities, and within Congress itself. This result is particularly pronounced when hearings were held on issues that the president prioritized. These findings are substantively important, especially given how the existing literature has characterized bureaucrats’ advantages in information and expertise in policy implementation vis-à-vis Congress. We provide evidence that under divided government, committees limited the amount of expert information from the executive branch that could be favorable to a president from the opposing party and instead welcomed outsiders to compensate for the relative loss of information from bureaucrats.

This chapter addresses the role of tax advice in encouraging aggressive and abusive tax planning by high-end taxpayers. It begins with a discussion of the different roles of tax advice, one of which is its use as a form of tax penalty insurance. The chapter then shows how the rich benefit disproportionately from the ability to avoid penalties through tax advice. After describing these effects, we offer a proposal for incorporating means adjustments into the tax penalty defense rules, focusing specifically on tax advice, and we respond to potential objections and concerns.

Chapter 7 scrutinizes how Congress’s internal resources impact the quantity and quality of information received by committees. Amid concerns over diminishing congressional capacity and the waning role of support agencies, the chapter explores the repercussions of downsizing initiatives – such as the elimination of the Office of Technology Assessment (OTA) – on committee information channels. Employing a difference-in-differences research design, the study reveals a stark decline in technical and scientific witnesses invited by committees heavily reliant on internally produced information post-OTA elimination. The findings underscore the critical role of robust congressional capacity in summoning research-based witnesses, emphasizing its pivotal significance in ensuring legislators’ access to vital scientific and technical insights.

This chapter considers how the statute of limitations can enable high-end tax noncompliance and prevent the IRS from challenging tax positions of high-end taxpayers. The chapter begins by describing the statute of limitations on tax assessment and the rationale underlying its design, which is followed by an explanation of how it encourages and facilitates abusive tax avoidance by high-end taxpayers. Following this discussion, we present a proposal for incorporating means adjustments into the statute of limitations in order to level the playing field between high-end taxpayers and the IRS.

This chapter explains the methodological approach behind the measurement of analytical information in witness testimonies. Focusing on House hearings from the 105th through 114th Congresses, the methodological approach quantifies technical information relevant to policymaking – analytical information – and shows how witness affiliations can capture meaningful differences in the amount of analytical information that witnesses provide Congress in committee hearings. Bureaucrats and research-affiliated witnesses excel in delivering analytical testimony, while citizens and religious institution representatives provide the least. The patterns in this chapter demonstrate that not all testimony provides the same type of information and that committees may receive different amounts of analytical information depending on the types of witnesses they invite. Taken together, the findings and patterns illustrated in this chapter motivate our argument that the composition of witnesses has important implications for committees, as witness invitations not only indicate from whom committees choose to hear but also signify the different types of information committees may ultimately receive.

This chapter turns to the structure of the tax compliance system and how it attempts to address high-end noncompliance. It begins by situating the tax compliance rules within the broader tax system. The discussion considers what they share with all tax rules and what sets them apart. The following sections begin a more detailed dive into the structure of the tax compliance system. After addressing what motivates taxpayers to comply with the tax law, the discussion considers the main components of the tax compliance system, and how these components leverage taxpayer motivations to improve compliance. With this important context on the tax compliance system established, the discussion then returns to the challenges of high-end noncompliance. The final part of this chapter describes the two most prominent approaches in current law and reform proposals. The first general approach is to increase funding of the Internal Revenue Service so it can more effectively deter noncompliance and recover unpaid taxes. The second general approach is what this book terms “activity-based” rules, targeting the specific taxpayer activities that can either indicate or enable tax noncompliance.