Closing the Tax Gap & Tax Loopholes
Every year, hundreds of billions of dollars of taxes that are owed are not collected. The "tax gap" — the difference between what individuals and corporations owe and what is paid on a timely basis — was estimated to total $345 billion for 2001 alone, according to the Internal Revenue Service (IRS). Wage-earning Americans, whose taxes are regularly reported and subject to withholding, pay 99 percent of what they owe. But business owners, many of whom underreport business income, will pay less than half of what they owe, according to government estimates, and investors will fail to pay billions more, due to underreported capital gains.
In addition to the estimated $345 billion "tax gap," billions of dollars of revenues are lost each year through tax loopholes that allow wealthy individuals and corporations to avoid or drastically reduce the taxes they owe.
Failing to collect taxes that are owed is unfair to Americans who pay their taxes. Indeed, the National Taxpayer Advocate estimates that tax evasion puts an extra burden of $2,680 on every household in America. Former IRS Commissioner Mark Everson estimated that an addition $50 to $100 billion a year could be collected from tax cheats if the IRS had the right resources and tools, increasing the fairness of the tax system and providing an amount sufficient to expand health care coverage for uninsured children, improve food stamp benefits, increase child care assistance for low-income families, and restore funding cut from child support enforcement. And that estimate does not even include the potential gains from closing down tax shelters and tax loopholes for corporations and very wealthy individuals.
Where things stand on the Hill
The Bush Administration presented proposals in 2007 to address the tax gap, but its plan would collect just one penny on every dollar of taxes that are owed. Congress has held hearings and is considering proposals to improve enforcement. Congress also is considering proposals to close some tax loopholes. For example, both the House and Senate have introduced bills to make private equity and hedge fund managers and firms pay their fair share of taxes, and the House version of the farm bill targets a tax loophole that allows foreign corporations to avoid paying taxes on U.S. income.
Statement of Robert S. McIntyre, Director, Citizens for Tax Justice, Before the Senate Budget Committee (January 23, 2007).
Senate Should Enact the Doggett Proposal to Close Loophole that Allows Foreign Corporations to Dodge Taxes on U.S. Profits, Citizens for Tax Justice (August 8, 2007).