Spend a Dollar, Get $3.20

July 2nd, 2011 at 9:41 pm

Unless you’re living under a very heavy rock, you know that Washington is in a deep and ugly squabble over revenues.   By the end of the week, party leaders were arguing over the profound question of whether tax breaks for corporate jets should be on the table.

Well, perhaps the first thing we should do is a better job of collecting the taxes we’re already owed.  And what if I told you for every dollar we spent doing so, we could collect about $3.20?

That’s the finding of a new study, reviewed by my CBPP colleague Kathy Ruffing.  The analysis, by the CBO and Joint Tax Committee, examines the revenue impact of “program integrity” initiatives proposed by the administration in its most recent budget, mostly ways to improve compliance with the tax code.  Under the proposal, the Congress provides the IRS with an extra $13 billion over the next 10 years, and according to the analysis, collects an extra $42 billion, as shown in the graph below.

Source: CBO, JCT

The tax gap—the difference between what’s owed and what’s paid—is actually much larger than this, maybe around $300 billion per year, but most of it is unreported from proprietorships and self-employment, stuff that’s very hard to get at.

The administration’s proposal is to go after some pretty low-hanging fruit.  But given our deep revenue needs, the magnitude of the gross gap, and the political optics here (opposition talking point: “Break the law! Don’t pay your taxes!”), this is a potentially “rich” area of further inquiry.


Print Friendly, PDF & Email

9 comments in reply to "Spend a Dollar, Get $3.20"

  1. Virgil Bierschwale says:

    So you would let GE, etc. slide while going after those that have no more to give?


    What is that old saying?

    Tripping over dollars to pick up pennies.

    • casey says:

      No way Jared believes that we should let the multinationals like GE “slide,” which I assume you mean continue to enjoy a very low effective tax rate. You can even just look at this single posting: http://jaredbernsteinblog.com/getting-to-a-trillion/ GE and those multinationals are the tax avoiders who would complain the most about proposals to “Reform International Tax System.”

      I think the point here was that tax evasion is wrong (illegal, even), and everyone should pay the taxes they legally owe. The multinationals with legions of tax lawyers are surely not doing anything obviously illegal, so increased IRS enforcement probably wouldn’t get more money out of them. The problem is that the tax rules on the books need to be overhauled.

      • casey says:

        Illegal tax evasion (underreporting income) =/= legal tax avoidance (exploiting all the loopholes)

      • Jared Bernstein says:

        Exactly. I thought that was obvious given my advocacy for international tax reform

  2. readerOfTeaLeaves says:

    Well, perhaps the first thing we should do is a better job of collecting the taxes we’re already owed. And what if I told you for every dollar we spent doing so, we could collect about $3.20?

    Well, if this is true, then it sounds like a good idea.

    If it went along the lines of: “In 2014, the rules will be: a, b, and c will be treated like this… and d, e, and f will be taxed as that…” As long as there’s no confusion and the rules are clear, it could convey a sense of fairness and cleaning up the mess of confusion and graft we currently have.

    This may actually be a really good argument for why the tax code needs to be reformed and simplified.

    I’m betting that some of those non-payers couldn’t tell you what they owe, or why. The tax laws are too convoluted, and that’s probably contributing to the ‘gap’.

  3. general c. san desist says:

    …need to smack the New Deal repeal crowd with Hamilton’s take on the subject…

    The Federalist No. 36 on Taxation…and (taxation) must naturally tend to make a fixed point of policy in the national administration to go as far as may be practicable in making the luxury of the rich tributary to the public treasury, in order to diminish the necessity of those impositions which might create dissatisfaction in the poorer and more numerous classes of the society. Happy it is when the interest which the government has in the preservation of its own power, coincides with a proper distribution of the public burdens, and tends to guard the least wealthy part of the community from oppression!

    The summation of the Conservative Brotherhood view on capital & labor is thus…it is merely a question between standing idle or accepting the rate of pay that must be accepted when workmen find that it is useless to fight the laws of political economy…New York Daily Graphic, December 6, 1873