The U.S. has a tax gap. According to a Tuesday report from the Department of the Treasury, the difference between tax dollars owed and collected amounts to $600 billion annually.
What Happened: That means that over the next 10 years, $7 trillion in tax revenue will have been lost, which is the equivalent to a 3% loss in GDP.
Most of the taxes owed do not come from average income earners, but rather the wealthiest Americans as $160 billion stems from money the “top 1% of earners choose not to pay,” the report stated.
Why It Matters: The U.S. now collects fewer taxes, as a portion of its GDP, than during most periods of the country’s history.
The fewer tax dollars coming in mean that representatives have tougher choices to make to balance the budget.
“These unpaid taxes mean policymakers must choose between rising deficits, lower spending on important priorities, or further tax increase to compensate for lost revenue — which will only be borne by compliant taxpayers,” the report reads.
What Else: The treasury department, like the White House, wants to increase the funds and people operating the Internal Revenue Service (IRS) in order to ensure that those earning more pay what they owe in taxes.
In May, the Biden administration proposed expanding the IRS by $80 billion and adding some 87,000 workers to the department to crack down on tax cheats.
The reform would bring in another $200 billion over 10 years, according to a Congressional Budget Office report. Democrats want to expand the IRS through the $3 trillion infrastructure bill that, if passed, will go through reconciliation.
Photo: The New York Public Library via Unsplash
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