Tackle the Tax Gap
Alex Brill | AEIdeas
The Senate Finance Committee held an important subcommittee hearing this week, “Closing the Tax Gap: Lost Revenue from Noncompliance and the Role of Offshore Tax Evasion.” The “tax gap,” which is the difference between the amount of tax rightfully owed by US taxpayers and the amount of tax actually paid, is not small. The IRS estimated the gross tax gap in 2019 to be roughly $600 billion, or 17 percent of total federal revenues. The annual net tax gap, which accounts for the fact that some of that revenue will be collected eventually, likely tops half a trillion dollars.
Although the tax gap realistically cannot be eliminated, reforms to tax law, changes to the IRS enforcement budget, and increases in tax reporting requirements could meaningfully reduce the gap and improve the fairness of the tax system.