CHART: A Hidden Source Of Budget Deficits

January 12, 2012 7:26 a.m.

Before Warren Buffett and Mitt Romney enter a bidding war over who will volunteer more of their millions to reduce the deficit, the government could recoup many billions of dollars every year if Congress just made it easier for the Treasury to collect what it’s already owed by law.

Meet the tax gap — the difference between taxes owed and taxes paid.

Via the Center on Budget and Policy Priorities, the IRS has found that in 2006, taxpayers shorted the government by about $385 billion — and an additional $65 billion was paid late. Back then, the tax gap was bigger than the annual budget deficit. With the economy still suffering, that’s likely not true today. But closing it even partially would take substantial pressure off of strained federal programs, which have been under constant attack by the GOP for over a year.

As you can see, the tax gap is on the order of the government’s biggest expenditure categories, and dwarfs the voluntary contributions Republicans suggest wealthy liberals like Buffett should volunteer to the Treasury.

Almost all of these losses come from the fact that many small businesses report just a fraction of their income to the IRS. In the Bush years there was at least some bipartisan consensus that giving the government the tools to close the tax gap was a good way to balance the budget without cutting programs or raising taxes. Now that’s all changed. Per CBPP’s Chuck Marr.

The Bush Administration pushed successfully for new withholding requirements on government contractors on the heels of troubling Government Accountability Office investigations showing widespread tax abuse. Then, in the 2010 health reform law, the Obama Administration teamed up with congressional Democrats to tighten reporting requirements on certain business transactions. These were two modest but real steps forward.

The current Congress, however, repealed both measures. To make matters worse, in last year’s deficit-reduction legislation (the Budget Control Act), House Republicans blocked Senate Majority Leader Reid’s effort to ensure sufficient funding for IRS tax compliance activities, even though the Congressional Budget Office concluded that it would have generated net budget savings of $30 billion over a decade.

Image from Dmitry Rukhlenko / Shutterstock

Latest Dc
Comments are now Members-Only

Non-members are still able to read comments, but will no longer be able to participate. To join the conversation, sign up now and get:

30% Off Annual Prime Membership

TPM strives to build as inclusive a community as financially possible. We offer FREE memberships to those experiencing financial hardship and FREE memberships for students.

View all options
Masthead Masthead
Founder & Editor-in-Chief:
Executive Editor:
Managing Editor:
Associate Editor:
Investigations Desk:
Audience Development Editor:
Editor at Large:
General Counsel:
Head of Product:
Director of Technology:
Associate Publisher:
Front End Developer:
Senior Designer: