Future Retirement Success
  • Politics
  • Business
  • Investing
  • Stocks
  • Politics
  • Business
  • Investing
  • Stocks

Future Retirement Success

Investing

New IRS Tax Gap Estimate

by October 11, 2024
October 11, 2024
New IRS Tax Gap Estimate

Chris Edwards

The federal “tax gap” is the amount of taxes owed but not paid on time, which is loosely viewed as the amount of tax cheating. The IRS has released a new estimate showing that the tax gap is down as a share of gross domestic product (GDP). Despite political rhetoric to the contrary, tax cheating is not a growing problem.

The gross tax gap in 2022 was $696 billion. After late payments and enforcement actions, the net tax gap was $606 billion. Of the gross total, $514 billion stemmed from individual income taxes, $50 billion from corporate income taxes, $127 billion from payroll taxes, and $5 billion from estate taxes.

The chart shows the tax gap was 2.7 percent of GDP in 2022. The gap has been roughly flat over the past decade and down a bit from two decades ago.

All tax systems have tax gaps, and there are pros and cons of using tougher enforcement to reduce the gap. The US tax gap is smaller than the average gap in Europe.

The flip side of the gross tax gap is the “voluntary compliance rate,” which is the tax paid on time divided by the estimated full amount owed. This rate was 85 percent in 2022, which was little changed over the past decade but up from two decades ago.

No one likes tax cheating, but there are civil liberties costs when the government tries to close the gap by heavier regulations and overzealous enforcement. The optimal tax gap is not zero because that would impose huge compliance costs and because the IRS makes errors. 

Furthermore, some of the tax gap is not outright cheating but rather reflects a misunderstanding of the complex code. Unfortunately, both presidential candidates have proposed changes that would complexify the tax code, frazzle taxpayers, and cause more errors. The proposed changes come after the current administration complexified the code with the Inflation Reduction Act.

Congress in 2025 should reject any loopholes proposed by the new administration. Lawmakers should simplify the tax code along the lines suggested by Adam Michel and myself. Simplifying the tax code would reduce cheating, boost growth, and be a win-win for taxpayers and the government.

I discuss IRS funding and the tax gap in congressional testimony here and here.

0
FacebookTwitterGoogle +Pinterest
previous post
Open Primaries Versus a Nonpartisan Universal Primary
next post
Doug Emhoff doesn’t deny report he slapped ex-girlfriend outside overseas movie event

You may also like

Building for Babies: Build, Baby, Build and Fertility

May 8, 2024

South Carolina School Choice Law Benefits the Public

February 13, 2024

Treating Business Costs Correctly in the Tax Code

September 5, 2024

To Combat the Accountant Shortage, States Should Consider...

September 25, 2023

New Cato Study: “Biden Short‐​Term Health Plans Rule...

March 14, 2024

Responding to Trump’s Credit Card Restriction Proposal

September 24, 2024

Friday Feature: Chance Academy

April 18, 2025

What Is a Fee to the CFPB? And Should...

April 20, 2023

United States v. Pierre Brief: Categorical Felon Disarmament...

January 6, 2025

To Close the Budget Deficit, Uncle Sam Should...

February 26, 2025

    Get free access to all of the retirement secrets and income strategies from our experts! or Join The Exclusive Subscription Today And Get the Premium Articles Acess for Free

    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Trump warns of ‘serious consequences’ if Elon Musk funds Democrats

      June 7, 2025
    • Musk jokes about reconsidering stance on Big Beautiful Bill after Schiff’s praise

      June 7, 2025
    • Musk deletes explosive posts about Trump and Epstein files

      June 7, 2025
    • House witness flips script on Dem who ambushed him during hearing with unearthed tweet: ‘Iceberg is ahead’

      June 7, 2025
    • Call with China’s Xi, and Trump-Musk exchange fueled barbs during 20th week in office

      June 7, 2025
    • Trump’s conservative allies warn Congress faces critical ‘test’ with $9.4B spending cut proposal

      June 7, 2025

    Categories

    • Business (8,152)
    • Investing (2,019)
    • Politics (15,568)
    • Stocks (3,136)
    • About us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: futureretirementsuccess.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2025 futureretirementsuccess.com | All Rights Reserved