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.

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.

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.

This chapter describes two areas of legal theory that consider when means-based adjustments to legal rules may not be desirable. Under one perspective, means-based adjustments designed for redistributive purposes should be reserved for the tax system alone, since introducing means-based adjustments to other legal rules would entail greater efficiency costs. A second literature considers the desirability of a legal system that is impartial, nondiscriminatory, and general in its application. Subjecting taxpayers to different legal rules based on means could also undermine these important criteria. This chapter considers how means-based adjustments to the tax compliance rules should be evaluated from each of these perspectives, and why they would be justified even in cases where means-based adjustments to other legal rules would not be.

The relationship between tax administration and tax policy is highly endogenous: policy decisions can directly affect the structure of tax administration, which in turn constrain subsequent policy options. Chapter 6 explore this relationship. For example, political decisions to cut the personal income tax for the rich in China directly undermined PIT administration, which in turn made it seemingly infeasible to expand the PIT. I also offer a novel explanation for the low levels of enforcement of urban employment-based social insurance (SI) schemes: conflicting incentives among the central and provincial government, not enforcement capacity, lie at the root of perennially lackluster enforcement. But the subtlest, yet most pervasive, causes of information constraints in Chinese tax policy are the structures of relentless delegation and governance through atomistic coercion. In the largest sphere of Chinese taxation—business taxation—information bottlenecks imply that considerations of economic efficiency are rarely applied. Instead, raising or reducing the overall level of taxes is the chief policy lever. This introduces tremendous instability to the fiscal system.

This chapter introduces the idea of an empowering state – one that provides its citizens with protection from vulnerabilities, resources to achieve their potential, and access to full participation in democratic institutions and decision-making. It argues that the last forty years have instead seen a disempowering state with many excluded by poverty and lack of opportunity, while for others active citizenship and participation were stifled. It contrasts the negative liberty of a neoliberal state – in which wealthy people and corporations are accorded freedom from interference and regulation – with the positive freedoms of a nurturing state – one that provides the wherewithal for each individual to achieve their potential.

It elucidates the many strands of an empowering state, beginning with the need for everyone to commit to making a fair contribution, rather than seeking ways to evade responsibility, and setting out the case for a far more progressive tax system than the one we currently have (which is shown to be essentially regressive). It discusses the need for greater democratic accountability and citizen engagement, with examples from pioneering local initiatives. Finally, it argues that protecting our natural environment and mitigating climate change require the support of an empowering state.

Inequality is a major global issue, destroying the social cohesion necessary for stability and security, the subject of Sustainable Development Goal 10. Poverty results from failures of redistribution within the economic system, stagnating wages, chronic unemployment and lack of opportunity, while less attention has been paid to the increasing global wealth going to the already wealthy as returns on capital, producing a social backlash. A new multilateral specialized agency should be created within the reformed UN system specifically to address growing economic inequality and to promote more equitable distribution of the world’s resources. While some countries have advanced, inequality between states remains a long-term problem, with development aid failing to address root causes. Various options and policies are available to redress global inequality between and within countries, including progressive taxation, employment creation, gender equality, a universal basic income and other provisions for social security. Design principles for a more just and sustainable economy are reflected in the UN 2030 Agenda. One priority is to establish a global regulatory framework for social and environmental responsibility in the private sector, creating a level playing field for business. Another is to rethink the global economic and financial architecture.