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.