Some active tax cheats also attempt to frustrate the IRS by employing a multi-tiered corporate structure. This is done by forming a corporation that then forms and owns another corporation, thereby moving the U.S. citizen further from the assets. The United States has an inherent interest in keeping capital located domestically. Congress recognized this when it exempted foreign capital from taxation. Perhaps if the United States lowered the tax rates on higher income levels, there would not be so many people trying to avoid taxation through complicated business structures and repatriation.
Studies show that the temptation to cheat on taxes rises faster than the tax rate.
129 One problem with eliminating deductions and credits, however, is that Congress would lose a lot of its power to control the use of capital. 130 Capitalism allows some people to become more wealthy and financially secure than their neighbors. The Internal Revenue Code levels the playing field somewhat by redistributing the resources of those with more to some of those with less. The governme nt has a responsibility to all of its citizens. Another problem with the flat tax is that it could reduce government revenue.