Reducing the Tax Gap: The Illusion of Pain-Free Deficit Reduction


 

Publication Date: July 2007

Publisher: Tax Policy Center

Author(s): Eric Toder

Research Area: Banking and finance

Keywords: Economy; Federal Budgets & Fiscal Policy; Tax Policy; Taxes, the Budget, and the Economy

Type: Paper

Abstract:

IRS recently estimated a gross tax gap of $345 billion, or 16 percent of tax liability, for tax year 2001. The gross tax gap is the difference between estimated tax liability in any year and the amount of tax that is paid voluntarily and on time. The tax gap could be reduced by expanding the scope of information reporting, as the current Administration and some Members of Congress have proposed, or increasing resources for IRS enforcement. Potential budgetary gains from these measures are modest, however, and will not enable politicians to avoid hard choices about future tax and spending levels.