The tax gap is the amount of taxes owed that are not collected, due to both intentional and unintentional errors. The IRS categorizes the federal tax gap as due to three causes: "
non-filing, underreporting and underpayment."
The article refers to research that suggests:
- Taxpayers are more compliant in good economic times than in bad.
- The gap increases when taxes are lower.
$600 billion is a lot of money! Consider the following comparisons:
- It is about 60% of the roughly $1 trillion annual deficit we've had for each of the last few years.
- It is 25% of the roughly $2.4 trillion of federal taxes collected annually.
- It is about three times larger than the amount of corporate income tax collected annually.
- The National Taxpayer Advocate describes the $385 billion annual tax gap estimate of the IRS as meaning that "each household [is] effectively paying a "surtax" of some $3,300 to subsidize noncompliance by others." [Click here, page 7.]
What would you suggest be done to reduce the tax gap?