To increase revenue, the government adopted the twin strategy of increasing taxes and reducing government spending. In regards to building revenue, increasing taxes does not only result in advantages. There has been much criticism of high corporate taxes in the U.S., which is known to result in widespread tax evasion, legally and illegally.
Many individual taxpayers and corporations evade taxes illegally by keeping unaccounted money in tax havens. Recently, the U.S. made agreements with many countries under Foreign Account Tax Compliance Act (FATCA) to curb this particular kind of tax evasion. Under the agreements, the details of U.S. citizen financial transactions will be shared with the IRS by the countries in which the transactions occurred. It will help the IRS catch tax evaders.
Many corporate and individual taxpayers exploit loopholes in the tax code to legally evade taxes. They use complex tax strategies such as shifting of profits to low-tax countries to limit their tax liability in the U.S. It is a strategy used by many multi-national companies to evade paying high U.S. corporate taxes.
The Treasury loses billions in revenue each year due to tax evasion. Efforts by the IRS to curb tax evasion through FATCA and the re-introduction of Offshore Voluntary Disclosure Program (OVDP) should also act as a deterrent for taxpayers to indulge in tax evasion.