Number of the Day: A $600 Billion Tax Gap?

Number of the Day: A $600 Billion Tax Gap?


The most recent IRS estimate of the tax gap — the amount of taxes owed but not paid voluntarily or in a timely manner — put the net figure at $406 billion a year from 2008 to 2010. But William G. Gale and Aaron Krupkin of the Urban-Brookings Tax Policy Center suggest that the hole may have grown substantially in the years since. “If the tax gap stayed constant relative to GDP since then, it would have reached $560 billion by 2018,” they wrote in a recent post looking at the problem of tax evasion. “If it stayed constant relative to tax revenues, it would have reached about $600 billion.”

To put that number in perspective, take another look at the Treasury chart above. You’ll see that $600 billion, if the tax gap has grown that large, would be more than the government spent on Medicare last year, and almost as big as the defense budget. It’s about three-quarters of the 2018 budget deficit.

“Cutting IRS spending, as policymakers have done in recent years, is penny-wise and pound-foolish,” Gale and Krupkin write. “While it is unreasonable to expect to receive all taxes that are owed the government, the IRS could do far more if it had the resources. Adequately funding the IRS and making a variety of structural tax changes would help raise collection of taxes owed and mitigate public concern that the system may be rigged in favor of the wealthy.”

Roll Call’s Doug Sword said Monday that lawmakers may finally be changing their tune on IRS funding, and that “Congress and the White House appear ready to open the appropriations spigot once again after years of cutbacks.”

Fixes won’t come cheap, though. Just updating the agency’s ancient tech systems would cost more than $2.3 billion, according to IRS Commissioner Charles P. Rettig. But as Gale and Krupkin argue, additional funds would be money well spent as far as government finances are concerned.