People that risk incriminating themselves by indicating their source of income generally don’t declare it, i.e. drug dealers (where the respective drugs are illegal), prostitutes (where prostitution is illegal), thieves, burglars, and bookies (where gambling is illegal). Illegal aliens also avoid paying income taxes because they don’t want to risk being deported. People with cash businesses often report less than they are actually taking in because there’s no hard evidence to the contrary.
Here’s a blog entry on How The Rich Avoid Paying Taxes on the Brookings Institution’s TaxVox blog indicating that 7,300 U.S. taxpayers earning $200,000 or more paid no income taxes whatsoever. Another 85,000 paid worldwide taxes amounting to less than 10% of their income. These figures underscore the argument for abandoning income taxes and all of its associated loopholes in favor of a fairer policy.
The TaxVox story is based on this blog entry: 7,389 Returns With Incomes of $200,000 Paid No U.S. Income Tax In 2005 on Stan Collender’s Capital Gains and Games blog.