Cracking Down on Tax Cheats: An Easy Fiscal Fix?

Cracking Down on Tax Cheats: An Easy Fiscal Fix?


With the federal budget deficit expected to rise to nearly $900 billion this year before crossing the $1 trillion mark in 2022, lawmakers and policy wonks have been looking for ways to generate more revenues, cut spending or both. On the left, for example, Sen. Elizabeth Warren (D-MA) has proposed a wealth tax and Rep. Alexandria Ocasio-Cortez (D-NY) has called for a significantly higher top income tax rate. On the right, the Trump administration has submitted a budget request that slashes domestic spending for years to come, while Sen. Mike Enzi (R-WY) has offered a more realistic budget plan that reduces deficits over a five-year period.

But what if the solution to our budget woes is already in place, and just needs a kickstart to begin bringing down the deficit in a hurry? That’s the gist of a New York Times editorial published Thursday, which asks a simple question: Why doesn’t the government do a better job of collecting the taxes that Americans already owe?

The size of the problem is clearly quite large, but no one can be sure because the IRS hasn’t produced an analysis of the “tax gap” – the difference between what the country owes in taxes and what it actually pays – in years. In 2010, the tax agency estimated that Americans were skipping out on roughly $400 billion in taxes per year – which is more than half of the $779 billion deficit recorded in 2018. There’s good reason to believe that the tax gap has grown since 2010, since the economy is now larger and IRS enforcement has been declining, even as the number of high-net-worth households has increased.

Critics charge that the weakening of the IRS is very much by design, with Republicans cutting the agency’s budget repeatedly over the last decade. In 2015, the IRS received $10.9 billion in funding – or $1.2 billion less than it received five years earlier. Between 2010 and 2017, the IRS conducted 42 percent fewer audits, according to a ProPublica report cited by the Times. And the number of enforcement agents has fallen to a low not seen since the 1950s.

As CNBC’s James Thorne put it, “The IRS is leaner, but not meaner.” And the result is that hundreds of billions of dollars go uncollected every year.

Treasury Secretary Steven Mnuchin seems to have recognized the problem, and the Trump administration’s 2020 budget includes a 5 percent boost in IRS funding. According to the IRS, the payoff from additional spending on tax collection is significant: for every $1 spent on enforcement, the agency brings in $4. However, there’s no sign that lawmakers in a divided Congress are interested in cracking down on tax cheats by providing the IRS with a big increase in funding.

“Lawmakers face many difficult issues and thorny choices. But this is not one of them,” the Times editorial says. “People should pay what they owe in taxes, and the government should spend what is necessary to make sure that they do. That is simply good government.”