Federal Taxes: Some Cheat, You Pay
Do taxpayers cheat when filing their taxes?
So how much cheating is going on?
The tax gap is the amount the IRS estimates is lost tax revenue due to people underreporting, underpaying, or failing to file their tax returns. Here are the IRS estimates of the tax gap for selected years:
|2006||$385 billion||2010||$406 billion|
|2007||$385 billion||2011||$381 billion|
|2008||$406 billion||2012||$381 billion|
|2009||$406 billion||2013||$381 billion|
These are official numbers from the IRS; just in case you’re wondering, that totals $3.13 trillion.
The IRS commissioner was quoted in the Wall Street Journal saying that $1 trillion in taxes may go uncollected each year.
Why is this happening?
Between 2010 and 2019, Congress cut the IRS budget by about 20%.
In 2010 the IRS had 12,500 auditors; in 2017, that number was down to 9,510. The last time the IRS had fewer than 10,000 auditors was in 1953. In 1953, the economy was one-seventh the size that it is today.
Audit rates are way down except for low-income taxpayers who generally earn less than $26,000 a year.
Most taxpayers have a W-2 form and bank and brokerage reports that get reported directly to the IRS. Upper-income taxpayers have income where there is little or no 3rd party reporting.
When Congress sets the IRS budget, they allot funding in four different categories, and the IRS cannot move funds between those categories unless they get approval from Congress. The Enforcement category is the one most responsible for collecting and auditing tax returns. The enforcement division lost 15,000 employees from 2010 to 2018.
So the IRS gets its funding cut even though it generates enough revenue to pay for itself.
Does that sound like Congress is working for you?
COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES. (2019, May). “Understanding the tax gap and taxpayer noncompliance.” https://www.treasury.gov/tigta/congress/congress_05092019.pdf
Goldberg, F., & Rossotti, C. (2021, February 1). $574 billion in taxes weren’t paid in 2019. Here’s how to shrink the gap. Fortune. https://fortune.com/2021/01/30/income-unpaid-tax-gap-2021/
McCormick, J. (2021, April 13). IRS chief says $1 trillion in taxes may go uncollected each year. WSJ. https://www.wsj.com/articles/irs-chief-says-1-trillion-in-taxes-may-go-uncollectedeach-year-11618337765