Does Washington Have Any Hope of Tapping the Tax Gap?

As I mentioned , IRS Commissioner Charles Rettig reported to Congress that the agency’s estimates of the “tax gap” have been far too low and the real number is more than double what has been reported: as much as $1 trillion dollars per year.

The “tax gap” is defined as the difference between what the tax laws say people ought to be paying in taxes to the federal government and what they actually cough up when all is said and done. To put the $1 trillion figure in perspective, the IRS collects about $2 trillion in individual federal income tax each year. That’s a lot of tax evading.

But it’s also kind of phony, in that nobody expects that any amount of tax enforcement is going to bring in an extra $1 trillion or anywhere near it. The voting public wouldn’t tolerate being suddenly milked for an extra tril’, nor for the more invasive IRS that would be required to find it.

However, the Biden administration is hoping they can get their hands on at least some of that yearly trillion by boosting the IRS enforcement budget. That way, if things go according to plan, they can have more revenue to play with without taking the political hit of raising tax rates or expanding the tax base. (Though they want to do all that, too, but hope you’ll believe it’ll only tap people richer than you.)