New York Criminal Attorney Blog
Tax fraud is a major issue for the state of New York, and it has taken the trial of one of the state’s most famous natives to really shine a light on the issue. Convictions for tax fraud are very rare, given the complexity of such cases. Despite this, New York State – and specifically the South and Eastern circuit districts – features twice in the top five offenders nationally, according to the United States Sentencing Commission.
There are clear reasons for this, of course. New York as a state has a huge amount of revenue derived from service and wire means; it’s often easier to conduct scams in this environment. Deliberate evasion is becoming more common, too, to tackle the deleterious impact of tough economic circumstances. While the big ticket convictions for tax fraud are often welcomed – being seen as justice against abusers of the system – it’s also important to consider the lesser-known reasons for fraud, and its hidden consequences.
Avoiding tax
New York has a very difficult level of tax burden for the average resident. According to NPR, New York residents see on average 12.47% of their income taken up by taxes. By contrast, Delaware sees only 6.12%. The average American will see around $550,000 of their lifetime earnings taken by tax; Canada, by way of reference, sits at around $870,000. With an average tax rate at 7.41% above the average, New Yorkers will see an additional $40,000 in lifetime earnings taken away.
According to the IRS, a view that tax is unsustainable or unfair is a reason often cited on tax returns. People simply believe they are being taxed much. When considering the current economic climate, it’s easy to see why. It’s little wonder that some of the larger-scale tax fraud cases highlighted by the state authorities aren’t always for huge sums of money; indeed, they are often smaller businesses struggling to get by – not it makes the crime any more acceptable.
Experiencing the pinch
New York is experiencing rising levels of poverty. According to a report published by the Office of the New York State Comptroller, the effects of the coronavirus pandemic continue to have significant impacts on everyday citizens. Poverty rates now surpass the national average, and are continuing to rise in the inflation and high interest rate climate being experienced throughout 2023.
This provides a colorful backdrop as to why crimes take place, but also lays the foundations on understanding why it is so dangerous and harmful when tax evasion and tax fraud occurs. While it is understandable that businesses and families experiencing hard times would look for extreme methods to recoup their money, these measures will only damage the system further. Indeed, New York services are already struggling and tax fraud has a role to play in that.
Impact on services
New York public services are under considerable pressure. The state already has the highest burden in the country, and taxes are high to accommodate that. However, according to Spectrum News, there are five areas in which services remain in dire straits. Of these, there are three – energy, child care and public safety – that have seen significant impacts and degradation in quality.
Analysis has shown the dire impacts that tax fraud has on these systems. A publication in the University at Albany scholar’s archive notes how the high burden of tax dollars being impacted by uncollected and undeclared tax has had a noticeable impact on services. It’s also important to consider exactly how these budgets contribute to the wider state deficit.
When taxes aren’t collected on reported income, or the amount of money flowing through the state is significantly below expected tax yields, this will impact on budgets. Budgets drawn up based on state revenue that can’t be squared with equal tax yields aren’t reliable. This creates issues in planning and ultimately harms services.
Whole-country impact
The result of unlawful avoidance, evasion and fraud schemes is huge. According to the Washington Post, the country is deprived of $427 billion per year due to unlawful schemes. New York accounts for 9% of national GDP; as such, if they recouped 9% of that figure, they’d see an additional $40.5 billion in the coffers, with the current budget set at $233 billion. That’s over a sixth of the total budget and would rectify many issues.
For the companies operating the myriad of small-scale tax avoidance, evasion and fraud schemes, their cumulative weight creates a huge burden on the state. They are effectively depriving the state of an additional $40 billion which could contribute to solving many of the issues being caused by widespread poverty. The conditions they are seeking to avoid are merely being exacerbated by their actions and can only be seen to detract from the wider health of the state.
Tackling bigger fish
Of course, there are larger bodies committing much bigger acts of tax fraud. According to the United States Attorney General’s office, two notable cases in recent months have seen schemes worth hundreds of millions of dollars toppled. With that, a huge burden is removed and businesses will start contributing once again.
There have been larger cases than this, even, which have shone a light at the heart of businesses exploiting New York’s tax practices. The state has a huge revenue; it pulls in more in GDP terms than all but 14 other countries. It has a huge population, too, and every single person needs to have their entitlement. That means ensuring that tax is paid, regardless of the person or business and regardless of the economic conditions.
What this should show is the broad impact of tax fraud, and illegal evasion or avoidance. Services are impacted, everyday people are hurt, and it leads to a negative feedback loop in which the overall quality of life and services in the state are impacted. In the long-term the negative impact of that cannot be underestimated. Everyone has to pay their fair share.