U.S. Tax Gap Relatively Small

Chris EdwardsThe Democrats have moved their huge tax ‐​and‐​spend reconciliation bill through the House, and it now heads to the Senate. The bill includes large tax increases on businesses, investment, and high‐​earning individuals.The bill also includes $80 billion of increased funding for the Internal Revenue Service (IRS). The IRS workforce woulddouble, with the focus on expanded tax enforcement. The aim is to raise revenues by reducing the tax gap, which is the amount of taxes legally owed but not paid. I  arguehere andhere that more aggressive IRS enforcement would impose substantial costs on Americans in terms of paperwork, lawyer fees, and civil liberties.Democrats argue that more IRS enforcement is needed to combat rampant tax cheating. But international studies show that the United States has a  fairly low tax gap and small shadow economy compared to other countries. In the studies below, the shadow economy generally refers to otherwise legal activities that are outside the government’s tax and regulatory grasp. The tax gap is the amount of revenue that would be raised if the shadow eco nomy were taxed.The table shows estimates of tax gaps and shadow economies as a  percent of gross domestic product (GDP) for the United States and the averages for countries in the European Union (EU) and Organization for Economic Cooperation and Development (OECD). The estimates show that the U.S. tax gap and shadow economy are generally smaller than the country aver...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs