High Earners Make Relatively Smaller Tax Errors

Chris EdwardsSenate Finance Committee Chair Ron Wyden (D ‑OR) held a hearing last week to counter the House Republican plan to cut the recent IRS enforcement boost. Sen. Wydensaid, “If you’re looking for the big winners of the McCarthy IRS defunding plan, it’s billionaires and corporations who cheat on their taxes … Repealing that funding is a $191 billion giveaway to wealthy tax cheats.”Ioffered a  different view at the hearing. I noted that tax enforcement imposes collateral damage, that the tax gap has been stable for decades, and that the U.S. tax gap appears to be smaller than Europe ’s. The “tax gap” means unpaid taxes from errors and cheating.Here ’s one problem with Sen. Wyden’s view: IRS audits find relatively smaller errors and cheating on higher‐​income returns than lower‐​income returns. As shown in the table below, IRS audits recommend additional tax of 5 to 8 percent of income for middle‐​income households, but just 1  to 4 percent of income for high‐​income households. These are averages within income groups over 2017 to 2021.For example, for households facing additional tax, the average is $6,100 for those earning $75,000 to $100,000, which is 7.0 percent of income, and it is $117,033 for those earning $5 million to $10 million, which is 1.7 percent of income. Note that the average audit change of $117,033 for this high ‐​income group may seem large, but that is just 6 percent of the average tax paid by these h...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs