Some investors avoid paying taxes in what is called “round-tripping” — sending money offshore, for instance, to the Cayman Islands, then using it to buy stocks and bonds back in the U.S. A study estimates that it has cost the U.S. as much as $27 billion in lost tax revenue since 2008.

Normally, American citizens who invest in the United States are supposed to pay taxes on any profits they make. But if they pretend they’re foreign, don’t report that they’re U.S. residents, and don’t report that income, then it’s very hard for the tax authorities to catch them. A lot of countries refuse to tell the Internal Revenue Service anything about their U.S customers.

In a study in the Journal of Finance, Michelle Hanlon of MIT, and her co-authors, Edward Maydew of the University of North Carolina and Jacob Thornock of the University of Washington, looked at what happened to the flow of funds in and out of the US when the tax rate went up, and also in periods when the U.S. government was especially aggressive about catching tax evaders.

The researchers found that if U.S. taxes go up by 1 percentage point, the amount of money flowing into the U.S. from foreign tax havens increases by as much as 2.8 percentage points. And the flow of money into the U.S. slows down when the IRS cracks down on tax cheats — like it’s doing now. (NPR 4/15/14)

An accountant once asked me if I “wanted to put my money into a “tax efficient” instrument in an offshore bank”. He said it was legal. I replied I suspected it was legal because the politicians were using it too, or their funders were. I said “not on your life”. How can one criticize the rich for tax evasion if poorer people do it too? These tax evaders are using our roads, hospitals, police force, schools etc. etc. that we ordinary people paid for. How dare they cheat like this?