Reducing the Tax Gap: The Illusion of Pain-Free Deficit Reduction

Research Report

Reducing the Tax Gap: The Illusion of Pain-Free Deficit Reduction

July 3, 2007

Abstract

IRS recently estimated a gross tax gap of $345 billion, or 16 percent of tax liability, for tax year 2001. The gross tax gap is the difference between estimated tax liability in any year and the amount of tax that is paid voluntarily and on time. The tax gap could be reduced by expanding the scope of information reporting, as the current Administration and some Members of Congress have proposed, or increasing resources for IRS enforcement. Potential budgetary gains from these measures are modest, however, and will not enable politicians to avoid hard choices about future tax and spending levels.

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