Closing the Tax Gap Isn’t So Easy
For years, lawmakers have been looking longingly at “the tax gap” as a way to help close the budget deficit. Each year Americans owe as much as $350 billion more in federal taxes than they pay. So, goes the argument, if we can only find ways to collect those dollars, we’d be a long way towards getting the fiscal house back in order.
Sadly, the more covetously the pols eye that $350 billion, the tougher it is for them to get at any of the money. Case in point: President Obama’s 2010 revenue proposals, released yesterday by the Treasury Dept. If ever there was a time to go after this pot of cash, you’d think it would be now considering that Obama is facing an eye-popping 2010 deficit of $1.8 trillion.
Yet, after scrubbing the Revenue Code, the Administration came up with 16 proposals to improve tax reporting and increase penalties for non-compliance. For all of that, Treasury estimates the IRS would collect an extra $10 billion over 10 years. Separately, the president is also proposing to hire another 800 revenue agents to take a harder look at sheltering of income overseas. That would generate another $17 billion over the next decade. It is a perfectly good idea to improve enforcement and otherwise crack down on tax cheats. But it isn’t going to do much to close a $350 billion annual gap.
Obama’s effort to drop the hammer (small as it may be) is not made any easier by Congress’ schizophrenia on the subject. In alternate years, it seems, lawmakers are either railing about the jack-booted thugs at IRS who audit their constituents or complaining about widespread abuse by taxpayers. Hard to keep it all straight.
Still, Obama’s effort to close the tax gap is yet more evidence that if Congress and the White House want to increase revenues to balance the budget, they are going to have to raise taxes. Tax cheats will not line up to do their civic duty. Free money is not going to fall from the sky.
The tax gap is real, and it is further evidence that the Revenue Code we have today is stressed to its limits. Congress and the president can only fix it by fixing it, not by tinkering around the edges