Taxes

Want To Close the Tax Gap? Cut Taxes.

It would require our enormous government to become less gluttonous with the people's resources.

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Every policy wonk will tell you that after you live in Washington long enough, you start seeing the same issues reemerge on a regular basis. Common ones are praise for the magical ability of government spending to help pay for itself during recessions and handwringing over the myth of middle-class stagnation. And when Uncle Sam's coffers are empty, everyone suddenly remembers the so-called tax gap—the difference between the tax revenues Congress expects versus those it actually collects.

So right on cue, calls to reduce the tax gap are back.

After the COVID-19 spending spree, the U.S. budget deficit is even higher than what we've become accustomed to. Meanwhile, President Joe Biden and his band of congressional super-spenders are eager to extend many emergency programs, such as paid leave and child benefits, as well as spend a few trillion more on infrastructure and "stimulus."

While politicians have no problem charging Uncle Sam's credit card and leaving the bill for future generations, today's leaders like collecting rich taxpayers' money even more. But increasing taxes is hard, so Democrats are turning their attention to the difference between taxes owed and taxes collected. Many politicians consider this a pain-free source of new funding.

According to the Department of the Treasury, the tax gap was $600 billion in 2019, and it projected to roughly 15 percent of taxes owed over the following decade. In 2006, this gap was $450 billion, up from $255 billion in 2001, and around 15 percent of taxes owed. If "closing the tax gap" were indeed an easy way to raise money, this gap would have been closed decades ago.

The traditional argument is that if we just beef up the Internal Revenue Service's budget—which has remained flat in real terms for years—and grow the ranks of its auditors, we won't have this problem.

The low-IRS-budget argument overlooks this reality: While the taxpayer services budget of the agency hasn't grown much, the agency's welfare-handout budget—including Obamacare subsidies, the Earned Income Tax Credit, and the Child Tax Credit—has exploded from $44 billion in 2000 to roughly $216 billion this year. And these figures don't include 2021's $650 billion in COVID-19-related payments.

The bottom line is that money isn't the issue with the IRS. The problem instead is the lack of focus on its core mission. Don't forget that while IRS agents aren't doing as much to take taxpayers' dollars away as Congress wishes they would, the agency also has an abysmal record serving taxpayers who are simply trying to navigate the tortuous roads leading to tax compliance.

In theory, more money in the IRS budget means more agents to help taxpayers comply or to track down tax evasion. But it likely requires some serious tradeoffs with civil liberties.

How far would you be willing to go to crack down on Uber drivers, cleaning ladies, and individuals operating cash-based businesses—also known as small businesses? We'd better have an answer, because that's the plan. And in light of the recent IRS data leak to ProPublica or the political harassment of conservative political groups in 2012, how much more power would you give the IRS to access people's finances?

Even if you think these are risks worth taking, don't expect much success on the revenue front. As several IRS reports and task forces have revealed, when it comes to closing the tax gap, enforcement is the costliest option and delivers only limited revenue.

In fact, former U.S. Taxpayer Advocate Nina Olson (who headed a government agency that helps people solve problems with the IRS) said in a 2011 Senate testimony that trying to reduce the tax gap by focusing narrowly on enforcement "can lead to reactionary laws, procedures, and enforcement actions that actually reduce overall revenue, particularly if they do not address the reasons for the noncompliance or if they unnecessarily burden or

There is one sure way to reduce the tax gap: Cut taxes until there is less incentive to evade the taxman. That requires our enormous government to become less gluttonous with the people's resources. It is not a pain-free solution for politicians accustomed to feasting on current and future taxpayers' dollars, but it would work.

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  1. tl;

    dr;

    fuck you

    cut spending

  2. Citizens! In all times, two political systems have been in existence, and each may be maintained by good reasons. According to one of them, Government ought to do much, but then it ought to take much. According to the other, this two-fold activity ought to be little felt. We have to choose between these two systems. But as regards the third system, which partakes of both the others, and which consists in exacting everything from Government, without giving it anything, it is chimerical, absurd, childish, contradictory, and dangerous. Those who parade it, for the sake of the pleasure of accusing all governments of weakness, and thus exposing them to your attacks, are only flattering and deceiving you, while they are deceiving themselves.

    -Bastiat

  3. The U.S. budget deficit narrowed to $2.2 trillion during the first nine months of the fiscal year from the same period a year earlier, with the gap between spending and revenue shrinking as the recovery from the pandemic-induced slump boosted tax collections.

    Outlays for the first three quarters of the government’s budget year rose 6%, to $5.3 trillion, the Treasury Department said Tuesday. Spending has been boosted by pandemic-related costs that included tax credits, expanded unemployment compensation, emergency small-business loans and stimulus checks to households.

    For the month of June, the U.S. deficit was $174 billion, roughly a fifth of what it was a year earlier. Revenue rose 87% in June to $449 billion, while spending decreased 44% to $623 billion

    https://www.wsj.com/articles/u-s-budget-deficit-narrowed-to-2-2-trillion-in-first-nine-months-of-fiscal-year-11626199200

    Donnie-Boy’s status as King of Debt is still intact.

    (and Biden is spending like a drunken sailor (McCain quote).

    1. In the year 2035, you could change your handle to Donald Trump’s Pee Tape.

    2. Biden is a dementia patient not in control of the administration or his own bladder. Those actually pulling the strings deserve your attention, but you would rather talk about the past because you’re a triggered little semi evolved simian still masturbating in public.

    3. It is amazing how you have yet to understand which branch of government passes budgets and appropriations.

      1. Oh sure. When Trump’s budget break the bank, it’s Congress’s fault, notwithstanding they didn’t have any Trump veto to override.

        When Obama’s or Biden’s budget breaks the bank, it’s their fault.

        1. Lol. Need me to post again from the last thread you tried this ignorant argument?

    4. When the White House flips between the two parties on a regular basis, but each president indebts the nation more than the last, then is there really any difference between the two parties?

      “We aren’t as bad as those Democrats because we don’t have nearly as many venereal diseases as they do. So sleep with us!”

  4. How about removing from the equation ALL federal taxes excepting a national sales tax, which would come printed out on your “receipt of sale,” so that the average consumer will know just how much they are paying for the feds every time they buy something?

    Once that is established, we can simplify the tax code so that 99% of folks can have a one-page tax form for federal taxes (last year I sent 38 pages of forms to the IRS. I wonder how much money the feds spent wading through all those numbers…..)

    I realize this would put hundreds of thousands of the current 1.2 million tax-preparers and accountants in the USA out-of-work, as well as seriously hurt Turbo-tax and similar services, but hey, this little “creative destruction” would benefit everybody.

    1. And as my grandad said, “The world always needs ditch diggers” as he handed me a shovel.

    2. That would work, except… we would end up with a national sales tax ON TOP OF THE INCOME TAX! It’s naive to think otherwise.

      Cut the spending first before fapping to with alternate tax systems. The problem is not the taxes the problem is the spending.

      1. I am guessing you missed the first sentence in my post:
        How about removing from the equation ALL federal taxes excepting a national sales tax.

        Spending is different issue. But maybe, if everybody realized how much the FEDS were taking out of their paycheck, they might look closer at them. And maybe then they would look to see how their State is taxing them to death (or not, depending on the State)

      2. “…enumerated powers” , from the Constitution. Return power to the States.

    3. Because consumption taxes cannot be anonymous and require intrusive government audits. Same problem as income taxes.

      A property tax can be anonymous: as long as the government gets its tax, they don’t need to know who paid it or who owns the land.

      1. If you are calling a sales tax a consumption tax please explain how that is not anonymous. If I buy a hamburger at Burger King & pay the tax, the state of Tennessee (where I live) has no knowledge that I have paid, only that it was paid by someone. It would work similarly for a federal sales tax. If you are saying the businesses will have to be audited to make sure they both collected the proper amount of sales tax and that they have remitted it to the proper tax department, yes, I agree with that. But I don’t think the bureaucracy to manage that would need to be as big as the current income collecting IRS is.

        1. “But I don’t think the bureaucracy to manage that would need to be as big as the current income collecting IRS is.”

          Especially, since States (forty-five of them) that have a sales tax already audits businesses for compliance. They could do the job for the Feds (for a modest “fee” of course.

        2. It’s not anonymous to the store’s customers, but they aren’t who the government deals with. They deal with the store, and they can get pretty damned picky on audits. The store could easily not charge extra for sales taxes, just include it in the price.

          Here’s something I learned while dealing with tax calculation vendors: some states, maybe all, want the higher of whatever the store collected from customers as tax, and what the calculated tax is.

          Suppose you sell things that calculate xxx.1 cents in tax. If the store collects xxx from customers, it still owes that tenth of a penny. If the store rounds up and collects xxx + 1 cents, the state wants that extra 9/10 cent too.

          They don’t care if the store sells one $50,0000 item, or 50,000 $1 items.

          All this is decidedly non-anonymous to the store.

    4. No thanks to a national sales tax.
      No new taxes, remember?
      When the national sales tax was first proposed, it was going to be 22% or whatever. Now it would have to be 30% or probably 35% by now.
      And you know to get it started they would compromise on a 10% sales tax, but keep the income tax, maybe with some minor rate cuts, then raise both rates later.

      Forget the tax part, put pressure on politicians to cut spending.

  5. Sure yeah now who cut taxes again, and who wants to raise them?

  6. Sure yeah now who cut taxes again the people who don’t pretend to be responsible and who wants to raise them? the ones who try

    1. Well this will get saved.

      Yes, raising taxes by 80 Billion really covers the 6 Trillion in spending. And you want to continue to raise taxes on others to pay for federal spending.

      How are you not a leftist again?

      1. 6 trillion = 6000 billion

  7. Every citizen has to pay the taxes in time and there is always some unwanted issues with paying taxes! By profession, I am a senior advisor at this https://www.itsupportcell.com/microsoft-office-365.html webpage and help the people with Microsoft office information and set up! I always pay my due tax in time.

  8. We had a President who cut taxes but Reason writers care about mean tweets and popularity within their lefty social circles and very little else.

    1. Well SPB and Sarcasmic appear to think raising taxes is the libertarian solution.

    2. Reason sucks for not completely abandoning all libertarian principles and instead going all-in for Trump, and the fact that they didn’t is proof that they’re leftists. Because there’s only 10 types of people in the world: those who understand binary and those who do not.

      1. 0100110001001000

        1. 01001000 01100001 00100001

          1. 01100110 01110101 01100011 01101011 00100000 01110100 01110010 01110101 01101101 01110000

          2. Nope. That is simply wrong.

            1. *blushes and runs away in shame*

      2. He was the most effectively libertarian president in our lifetimes. But that didn’t matter to Reason writers.

        1. He was a broken clock that got it right twice a day. Anything he did that was libertarian was pure coincidence. The writers gave him kudos when deserved, and were otherwise critical from a libertarian point of view.

          What else do you want?

          1. Well to some people, the “mean tweets” are what made Trump soo ‘libertarian’.

          2. Less Biden support

            1. Based upon what? Not being Trump?

              Biden gets things right now and then. Like when he…. Um…. I mean… er….

            2. That’s right. Because Real Libertarians (TM) will always oppose everything that Democrats do no matter what, but will give Republicans the benefit of the doubt when they screw up.

              1. What has biden done thats libertarian again?

                1. He let trans ‘women’ play sports. Sort of libertarian.

                  Yeah, that sucks, but it’s as close as I can think of.

          3. Lol. Wow. Please now criticize Biden. Are you able to yet?

      3. You think above it is better to raise taxes. Lol.

  9. Sorry Veronica, the answer is to cut spending. Cut the spending and the taxes will follow. Cutting taxes may indeed increase some revenue, but it’s never enough to offset the cut itself.

    Cut the spending and the taxes will follow!

    Conservatives need to get over the myth that all tax cuts pay for themselves. They’ve been operating under this delusion since before Reagan. The Laffer Curve is a real thing, but it’s NOT a magic spell to pay for the big government programs the conservatives secretly desire.

    It’s time for the smaller government conservative ideology to come out of the closet and actually act as if smaller government were their goal. Until then they’re just slightly less spendthrifty than the Democrats. The excuse the the other side are even more drunk and filthy doesn’t fly any more. Grow a fucking spine and stand up for your principles.

    1. See my above quote from Bastiat. The difference between conservatives and liberals is that liberals kinda sorta pretend like they want to pay for stuff with taxes, while conservatives blame liberals for spending while cutting taxes.

      1. Raising spending by 6 trillion and raising taxes by 700 billion is better than just raising spending by 700 billion? Are you using CRT math? Because that’s what you’re saying right now.

        1. No, I think Sarcasmic actually has the right of this one, and he’s saying that raising spending by 6 trillion and taxes by 700 billion is better than raising spending by 6 trillion and not raising or even lowering taxes.

          Which, from an actuarial standpoint is correct. It would be better, of course, to not raise spending at all from the libertarian perspective. But it’s at least a consistent position.

          I dunno. I almost wonder if it would be better to raise taxes by the 6 trillion. At least the people who voted for it would feel the pain at that point, and they might stop. But that gets back to my idea to eliminate withholding and move tax day to October 15th, right before the election. Make everyone who pays taxes write a check for the amount, and do it right before they go to the polls.

          1. Republicans never said they wanted to spend 6 trillion. Please follow the argument. He is saying democeats are better because they raise taxes with their spending. You’ve misread him.

          2. I mean his exact quote is The difference between conservatives and liberals is that liberals kinda sorta pretend like they want to pay for stuff with taxes,

            So I literally pulled the last 2 supported proposals from each party.

            Republicans wanted a 1.3 trillion dollar bill with only half being new spending. No tax raises.

            Current democrats are set on 2 bills. 3.5 trillion with 700 billion in new taxes or 3.5 trillion and 2.3 trillion in new taxes. This is with the 1.5 trillion dollar bill with 70 billion in new taxes.

            So why are you defending his bullshit?

            1. The only thing I’m defending is the notion that taxes should be raised to match increased spending. Well, sort of defending that, because I’d rather we not raise spending at all. But if they’re going to spend the money, it should come with an obvious immediate cost to the citizenry, so those same citizens can’t just ignore it.

              1. But if they’re going to spend the money, it should come with an obvious immediate cost to the citizenry, so those same citizens can’t just ignore it.

                Politically, raising taxes along with spending may be a good idea for the reason you mentioned.

                Economically, it isn’t: raising taxes to pay for government spending actually makes things even worse as there are fewer private dollars to compete with government dollars.

          3. Taxes would have to be 100% to pay for what the government spends.

            Yeah.

            1. That’s not what liberals are doing you retarded fuck. So why lie about it in the post you made?

            2. Democrats don’t even support Paygo which Republicans generally do.

              https://www.nbcwashington.com/local/now-go-paygo/1850524/

              So youre completely full of shit as usual and supporting the left. Yet you claim you aren’t a leftist.

          4. No, I think Sarcasmic actually has the right of this one, and he’s saying that raising spending by 6 trillion and taxes by 700 billion is better than raising spending by 6 trillion and not raising or even lowering taxes. Which, from an [accounting] standpoint is correct.

            No, it is not correct. Spending $6 trillion damages the economy through misallocation of resources. Raising $700 billion in taxes on top of that simply adds an another $700 billion of misallocation of resources on top of that.

    2. Tax rate cuts (while closing loopholes) always has increased tax revenues. The problem is spending has gone up faster.

    3. Conservatives need to get over the myth that all tax cuts pay for themselves.

      Tax cuts are good policy even if they don’t “pay for themselves”.

      Conversely, most government spending is bad even if it is fully paid for.

      I.e., stop linking taxation and spending; the link between them is only that interest on the debt happens to add to spending.

  10. I had a job dealing with vendors who calculate sales taxes. You feed them the buyer and seller addresses, types and quantity and price of goods, and assuming you have configured your nexus correctly, it spits back how much sales tax you owe.

    Comparing the different vendors was interesting. They agreed on the total only about 90% of the time, but about half of those differed in how they apportioned the tax among state, county, city, and the zillion special districts (mosquito abatement, hospitals, football stadiums, wildlife refuges).

    I bet a serious audit would have found half the taxes we charged were wrong one way or another.

    That was just sales tax. I bet if you had 100 tax people prepare the same return, you’d get 100 different totals. If you depended on the IRS people to tell you, throw in another 100 for every call you made.

    I have zero faith in the real tax gap being anything close to the political claims.

  11. I have it worked out so that my taxable income and my itemized deductions balance out, so 0 income tax. Then the rest of my income comes from capital gains, but I keep my total gross below the threshold for the 0% capital gains rate. Unless the tax laws change, I’m looking at about 15 years of 0 federal tax. I’m not sure how much “less gluttonous with the people’s resources” the federal government can be when I’m going to be drawing down taxable IRA/401K accounts and taking capital gains, but avoiding paying any tax at all on them.

  12. repeal the evil 16th amendment.

  13. Ms. de Rugy is correct in a sane world. Unfortunately, we don’t live in a sane world. Tax cuts will not restrain gov’t spending. They will just result in additional gov’t indebtedness – which is nothing more than stealing from future generations. And, since future generations don’t vote, there is countervailing force to stop this from continuing except maturity. Too bad we’re short on that at the moment.

  14. End Social Security / Medicare!

    1. That would save a lot of money, but any politician proposing it would lose big before they got a chance to enact it.

      The best plan at this point that might actually work would be to stop spending more every year, or at least to cap the growth in spending to 2% or whatever until tax revenues catch up due to economic growth.

      1. Balanced budget amendment.

        Has about as much chance of passing as a return to British rule.

  15. Well, the Biden/Harris plan to close the tax gap is to hire 87,000 new IRS agents to squeeze it out of people.

    1. Because one thing that helps bloated organizations get a handle on their overspending is to hire tens of thousands of additional employees.

  16. Correction —
    That requires our enormous government to become less gluttonous with (?the people’s?) working people’s slave-labor.

    Lefty-indoctrinated citizens who were steered into believing the criminal mind “conquer and consume” had a future in the USA. Every lefty-candidate promises to *steal* EVEN MORE of other people’s belonging/earnings and the mob cheers.

    Once upon a time the basic concept of being able to *earn* what one desire/needed was championed and cheered in the USA.

    1. Democrats don’t seem to realize that underneath all their B.S. excuses and B.S. justifications they’ve become an aggressive [WE] mob gang totting Gov-Guns that initiated a war against USA patriotic citizens. They are the USA’s Nazi’s (def; National Socialists).

  17. “the agency also has an abysmal record serving taxpayers who are simply trying to navigate the tortuous roads leading to tax compliance.”

    The IRS is not the reason for the “tortuous road”, it is Congress that writes the tax law. The IRS are simple the those overseeing the collection. You are putting the blame on the wrong people.

    1. Um, yes, Congress designed the byzantine system, but the IRS enforces it arbitrarily and maliciously. There’s plenty to hate about both.

      1. First regarding maliciousness, my interaction with IRS staffer has always been limited, but I have always found them to be professional and fair.

        Regarding any arbitrariness I would again point to Congress for a failure to provide clear rules about how the tax system should operate. I would also point out that as the article notes Congress uses the IRS for tasks never intended in its inception. Thus making scope of work larger, more uncertain and more susceptible to arbitrariness.

  18. Perhaps it wouldn’t be such a struggle to collect what you need if you
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    1. Too hard for a lazy Congress. Easier to whine about CRT and billionaires.

  19. > There is one sure way to reduce the tax gap: Cut taxes until there is less incentive to evade the taxman.

    this is dumb as hell. people would still evade the smaller taxes.

  20. Want To Close the Tax Gap? Cut Taxes. It would require our enormous government to become less gluttonous with the people’s resources.

    Ah, Reason needs to polish its “libertarian” image by writing a pointless fluff piece that advocates policies that are impossible to realize in practice.

  21. The only way to introduce sanity in the public discussion is to provide an outlet for the insane option.

    #DefaultontheDebt

  22. Reason, shorter: Never ever tax billionaires.

  23. I hate high taxes as much as anybody, but they’ve got to raise as much as they spend. The federal debt is $28,500,000,000,000 and rising fast. It’s insane. Without drastic spending cuts, lowering taxes won’t help anybody in the long run.

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