Biden Budget Outline is a First Step Toward What is Needed to Shrink the Tax Gap

The Tax Gap is all the money that is legally due under the tax law but is not collected each year—now up to $574 billion per year.

The Tax Gap is a result of a minority of mostly upper income taxpayers not reporting all their income and therefore not paying all the taxes they legally owe. If taxes are increased, they will be paid by the people who are already paying. That’s not fair.

There is a practical way to collect a big part of that Tax Gap — we estimate a gain of $1.4 trillion over 10 years with a return on investment of 15 to 20 times the cost.

That is not a partisan issue. It is just common sense.

The budget outline released by the Biden administration last week for the 2022 fiscal year (October 1, 2021 to September 30, 2022) adds funds for the IRS to restore some of its basic services to taxpayers and to begin to address the Tax Gap. This is a necessary first step.

The keys to an effective IRS are consistency and level of funding. To really make the tax system fairer for all compliant taxpayers, the IRS needs to invest in technology and staff capacity at a steady pace year after year, not in fits and starts as has been the case for decades. This will require assured multi-year funding from Congress. Imagine a business trying to innovate and serve customers if it couldn’t do long-term financial planning. It wouldn’t work for the business and it doesn’t work for the IRS. That needs to change and President Biden’s plan is a good first step.

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