The United States government could be banking an extra $1 trillion over the next decade if it would only increase the enforcement of tax collection by the Internal Revenue Service, according to a new study.
The National Bureau of Economic Research’s working paper shows that if the IRS increased its audits, reporting requirements and bolstered its information technology, it could decrease the amount of uncollected taxes by around 15% over a decade.
“Almost everyone involved in public policy debates agrees that it would be good if the federal government could collect more revenue without raising tax rates or reducing tax deductions or credits,” Harvard economist Lawrence H. Summers and Wharton economist Natasha Sarin, the study’s authors, said in a summary of the report. “It should be indisputable that investment to make sure all citizens meet their tax obligations is desirable.”
Sarin and Summers do admit that finding the exact amount of the tax gap that could be collected would not be possible, but the paper “offers a naive approach” to the issue. Uncollected taxes by 2029 will surpass $7.5 trillion in the current system, the two estimate. What’s potentially more of a shock (or maybe not) is that 70% of that $7.5 trillion would be attributed to underpayment and tax avoidance by the top 1% of earners.
Of course, increased enforcement means increased costs as well. Sarin and Summers said the IRS would need around $100 billion extra in the budget over 10 years to hit those tax revenue targets. Estimates from the government show that for every $1 extra the IRS gets, it leads to between $5 and $13 extra in tax collection.
The nonpartisan Congressional Budget Office ran a similar model using a smaller budget increase. The office found that a $500 million budget increase in the 2019 IRS budget would decrease the federal deficit by $35 billion by 2028. Of course, the CBO warned against uncertainties as people caught on to what the tax man was doing.
“Taxpayers would gradually become aware of some of the changes in the IRS’s enforcement techniques associated with the initiatives,” the CBO said, according to Markets Insider. “In response, they would shift to other, less detectable forms of tax evasion.”