I'm not sure if many people declare their Paypal income to the government taxes since most people just earn a few hundred or less from Paypal when they sell stuff to eBay, advertisement on websites, and for doing stuff online.
Plus, a lot of people are probably too lazy, or don't know how to declare money sent via Paypal for selling and doing stuff.
Same, for me, I think the government monitors our lives too much offline as it is, and having the Government spying on our online life is just creepy, and annoying most of the time like a crazed stalker.
I think only people who get paid thousands or more then tens of thousands via Paypal declare it on their taxes, and if you send PayPal money as a Gift then you can use the loop hole to avoid taxes since very few people declare money they got as a gift from their parents, siblings, friends, etc on their tax report.
