Tax evasion: The art of hiding income

• Author:
• Author name

  Quantumrun Foresight
• August 26, 2022

Insight summary

High-income earners and the wealthy are using various strategies to significantly lower their tax burdens, while the general population faces standard taxation rates. Methods like receiving income through dividends, holding stocks to avoid taxable income, taking loans for expenses, and using offshore accounts are common among the wealthy. These practices, including profit shifting by large corporations, contribute to substantial tax revenue losses globally, impacting economies and increasing public resentment towards wealth disparities.

Tax evasion context

In 2021, couples earning more than USD $628,300 were subject to the maximum 37 percent income tax rate. In 2022, this rate was adjusted to those earning over $647,850 as married couples filing jointly, according to the Tax Foundation. However, some of the ultrawealthy, managed to pay zero percent in federal taxes two to three years in a row. How are the billionaires sidestepping a pervasive taxation system that average workers can’t escape?

Two major leaks of global financial information, the Pandora Papers in 2021 and the landmark Panama Papers in 2016, showed the unimaginable wealth of the world’s politicians, tycoons, and celebrities sitting in offshore accounts—undeclared, unaudited, untaxed. And while some political consequences and arrests have resulted from these leaks, the fact remains that there’s an entire financial system that protects the very wealthy. 

In an analysis of the US Internal Revenue Service (IRS) public data by investigative news nonprofit ProPublica, the tax rate that the top 25 wealthiest Americans paid from 2014 to 2018 only amounted to 3.4 percent. Compare this with the middle class, who paid the same amount of taxes as their net worth grew over the same period. By the end of 2018, the top 25 wealthy Americans with a net worth of USD $1.1 trillion paid $1.9 billion in taxes. The general wage earners? USD $143 billion.

There is a slew of techniques that the top 1 percent use to avoid being taxed. The most common tactic is a low salary range. For example, Steve Jobs once opted for a salary as low as USD $1 when he returned to Apple in the 1990s. This salary wasn’t an act of humility. Wages are the most highly taxed income segment, so the wealthy instead collect their earnings primarily from the dividends generated from stock sales, bonds, and other investments.

Additionally, by holding on to the stocks of the companies they founded, industry tycoons avoid converting their “unrealized wealth” into taxable income. Another strategy employed by the wealthy is to take huge amounts of loans to pay their daily expenses. The cost of servicing these loans is minimal—particularly when interest rates are in the single digits—and most important, these loans are not taxable since they are not considered income.

Disruptive impact

In 2022, a data leak from private bank Credit Suisse showed the beneficiaries of a sum totaling nearly USD $105 billion. They included human traffickers, secretive billionaires, and corrupt politicians, mostly from developing nations. Credit Suisse defended itself by saying that financial information privacy laws prevented them from divulging their clients and that they conduct the highest due diligence and background checks. Unfortunately, this is not the first data leak on the offshore accounts of the ultrawealthy, and it won’t be the last.

Offshore accounts are another tried-and-tested method for tax evasion, but profit shifting has also been popular for the past decade. The technique comprises transferring profits from a corporation’s higher-taxed subsidiaries, where actual economic production occurs, to other affiliates in low- or no-tax jurisdictions (tax havens). Big tech firms like Google, Facebook, Microsoft, and Apple have used this strategy.

Typically, this tactic is accomplished by a multinational firm creating internal transactions that exploit international tax rules to move taxable income across jurisdictions. According to Tax Justice Network estimates, multinationals’ tax avoidance costs USD $500 billion annually. Coupled with undeclared income and other loopholes, these ongoing tax evasion schemes will continue to siphon much-needed capital from struggling global economies and average income earners.

Implications of tax evasion

Wider implications of continued tax evasion may include: 

• Higher national debts resulting in higher taxation schemes for the general population.


• Whistleblower leaks detailing the financial information of the wealthy being released more regularly, with political and economic consequences.


• Calls for higher taxation for the wealthy from civil rights groups and even from some millionaires. However, any regulation will face challenges in being passed.


• Continued public resentment against the wealthier segments of national populations, worsening wealth divides.


• Governments using artificial intelligence systems to automate tax information gathering, income identification, and collection processes.


• New taxation schemes utilizing cryptocurrency and blockchain technologies to promote greater tax transparency and minimize fraudulent activities.


• The wealthy creating more investment loopholes to avoid converting their wealth into taxable income. 

Questions to consider

• How can the government overhaul the existing tax system that favors the rich?


• How do you think ongoing tax evasion schemes will affect average earners long-term?