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CRFB Chartbook - Reducing the Tax Gap - 07/14/2021
- 1. CRFB.org
- 2. CRFB.org Americans Underpay Their Taxes By About 15% Percent of Total Taxes Owed * Treasury adjusted estimates Note: Due to updated methodologies, these estimates are not directly comparable. The estimate for TY 2006 has been revised to reflect methodologies used for the TY 2008-2010 estimate, and the TY 2008-2010 estimate has been revised to reflect methodologies used for the TY 2011-2013 estimate. All estimates for TY 2019 are preliminary. Source: Internal Revenue Service, Treasury Department. 83.7% 82.3% 83.8% 83.6% 83.7% 86.3% 85.5% 85.8% 85.8% 85.8% 80% 82% 84% 86% 88% 90% 2001 2006 2008-2010 2011-2013 2019 Voluntary Compliance Rate Net Compliance Rate
- 3. CRFB.org There’s Half a Trillion in Unpaid Taxes Each Year Note: Due to updated methodologies, these estimates are not directly comparable. The estimate for TY 2006 has been revised to reflect methodologies used for the TY 2008-2010 estimate, and the TY 2008- 2010 estimate has been revised to reflect methodologies used for the TY 2011-2013 estimate. The TY 2019 estimate, which is preliminary, reflects an even newer methodology. Source: Internal Revenue Service, Treasury Department. Billions $290 billion $387 billion $344 billion $381 billion $554 billion $345 billion $472 billion $394 billion $441 billion $630 billion $0 $100 $200 $300 $400 $500 $600 $700 2001 2006 2008-2010 2011-2013 2019 Net Tax Gap Late Payments and Enforcement Activities
- 4. CRFB.org That’s 2.6 Percent of GDP – Which is A Lot of Money Note: Data reflects 2019 figures Source: Treasury Department, Congressional Budget Office, World Bank, Wall Street Journal 2.6% 1.9% 1.8% 2.5% 2.1% 2.4% 1.3% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 2019 Tax Gap Medicaid Spending (federal) Income Support (non-SS) GDP of Sweeden GDP of Argentina Revenue of Walmart Revenue of Amazon Percent of U.S. GDP
- 5. CRFB.org Most of the Tax Gap is from Underreporting Percent of Gross Tax Gap Non-Filing $39 billion 9% Underpayment $50 billion 11% Underreported Income $167 billion 38% Over/Misreported Adjustments $67 billion 15% Other Underreporting $118 billion 27% Source: Internal Revenue Service Note: Data reflects average annual amounts during the Tax Year (TY) 2011 through 2013 period
- 6. CRFB.org A Breakdown of the Gross Individual Income Tax Gap Source: Internal Revenue Service
- 7. CRFB.org A Breakdown of the Underreporting, Only Source: Internal Revenue Service Note: Data reflects average annual amounts during the Tax Year (TY) 2011 through 2013 period
- 8. CRFB.org A Breakdown of the Gross Payroll Tax Gap Source: Internal Revenue Service
- 9. CRFB.org A Breakdown of the Gross Corporate Income Tax Gap Source: Internal Revenue Service
- 10. CRFB.org Individual Income Tax Payroll Tax Corporate and Other Taxes Total Business and Self-Employment Income 36% 12% 10% 58% Labor and Other Income 12% 6% - 18% Credits, Deductions, and Adjustments 15% - - 15% Capital Income 8% - <1% 9% Total 71% 18% 11% The Tax Gap is Largely Business Income Percent of Gross Tax Gap Source: Internal Revenue Service
- 11. CRFB.org Which Has Little Information Reporting Source: Internal Revenue Service, “Federal Tax Compliance Research: Tax Gap Estimates for Tax Years 2011–2013”, September 2019 Note: Data in chart covers Tax Years 2011-2013
- 12. CRFB.org Which Has Little Information Reporting Source: Internal Revenue Service, “Federal Tax Compliance Research: Tax Gap Estimates for Tax Years 2011–2013”, September 2019 Note: Table covers Tax Years 2011-2013
- 13. CRFB.org
- 14. CRFB.org Closing the Tax Gap is a Bipartisan Priority Donald Trump George W. Bush George H.W. Bush Ronald Reagan
- 15. CRFB.org How Can We Reduce the Tax Gap? ▪ Provide for stable tax enforcement funding. ▪ Fund and empower the IRS to make better use of data analytics, improve taxpayer services, and prevent and correct errors. ▪ Enhance information reporting, withholding, and electronic filing. ▪ Increase penalties, incentives, and education to improve timely and accurate tax compliance. ▪ Demand accountability from tax preparers and accountants. ▪ Coordinate with other countries on tax and income reporting. ▪ Establish new rules and procedures for gig work, crypto-currency, and other areas with high underreported income. ▪ Close loopholes that undermine compliance.
- 16. CRFB.org Source: Congressional Budget Office, Office of Management and Budget, Penn Wharton Budget Model Net Savings from Various Tax Gap Proposals $41 billion $60 billion $63 billion $87 billion $100 billion $400 billion $711 billion $0 $100 $200 $300 $400 $500 $600 $700 $20b IRS Funding (CBO) Trump Plan (CBO) $40b IRS Funding (CBO) Trump Plan (OMB) Bipartisan Infrastructure Framework Biden Plan (CBO) Biden Plan (PWBM) Biden Plan (OMB) IRS Funding Information Reporting and Other Reforms Billions
- 17. CRFB.org Returns on IRS Funding, According to Treasury Source: U.S. Department of the Treasury, “The American Families Plan Tax Compliance Agenda”, May 2021
- 18. CRFB.org Returns on IRS Funding, According to CBO Source: Congressional Budget Office, “Trends in the Internal Revenue Service’s Funding and Enforcement”, July 2020
- 19. CRFB.org Audit Rates are Way Down Source: U.S. Department of the Treasury, “The American Families Plan Tax Compliance Agenda”, May 2021
- 20. CRFB.org OMB Ten-Year Savings CBO Ten-Year Savings Increase IRS tax enforcement funding (cost) -$15 billion -$15 billion Increase IRS tax enforcement funding (revenue) $79 billion' $71 billion' Give IRS more flexibility to address correctable errors $17 billion $0.3 billion Strengthen enforcement of SSN requirement for tax credits $3 billion not scored separately Clarify worker classification rules, improve reporting requirements $2 billion $1 billion Increase oversight of paid tax return preparers $0.5 billion $0.2 billion Expand mandatory electronic filings of W-2s* $0.3 billion <$0.1 billion Total ~$87 billion ~$60 billion The Trump Plan Note: Includes proposals from President Trump’s FY2020 and FY2021 budget requests Source: Office of Management and Budget
- 21. CRFB.org OMB Ten-Year Savings Increase IRS Tax Enforcement Funding $238 billion Increase IRS tax enforcement funding (mandatory outlays) -$71 billion Increase IRS tax enforcement funding (discretionary outlays) -$7 billion Increase IRS tax enforcement funding (revenue) $316 billion Information Reporting $463 billion Introduce comprehensive financial account information reporting $463 billion Expand broker information reporting with respect to cryptocurrency assets N/A Other Reforms $9.9 billion Impose liability on shareholders to collect unpaid income taxes of applicable corporations $4.7 billion Modify requisite supervisory approval of penalty included in notice $1.9 billion Require Taxpayer Identification Numbers certification for reportable payments $1.8 billion Extend statute of limitation on taxpayer noncompliance with listed transactions $0.7 billion Allow IRS to regulate paid Federal tax return preparers $0.6 billion Increase penalties on ghost preparers $0.2 billion Expand Treasury’s authority to require electronic filing of forms and returns N/A Total $711 billion The Biden Plan Note: Includes proposals from President Biden’s FY2022 budget request Source: Office of Management and Budget
- 22. CRFB.org The Bipartisan Plan Invest $40 billion over ten years in IRS funding in order to generate $100 billion of net revenue (Other details forthcoming)