Richard Recently Received $10,000 of Compensation for Some Consulting Work

question 109

Essay

Richard recently received $10,000 of compensation for some consulting work (paid in cash). Jeffrey recently received $10,000 of interest income from City of Dallas bonds. Both taxpayers report no taxable income from these transactions. Is this considered tax avoidance or tax evasion? What is the difference, if any, between the two?

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Definitions:

External Cost

Costs incurred by third parties as a result of an economic transaction, which are not reflected in the transaction's market price, often necessitating government intervention.

Social Cost

The total cost to society, including both private costs incurred by individuals and external costs not accounted for by the market.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period.

Supply Curve

The supply curve is a graphical representation showing the relationship between the price of a good or service and the quantity supplied for a given period, typically upward sloping.