- In a Senate Finance Committee hearing, IRS Commissioner Charles Rettig addressed the tax gap.
- That’s the gap between how much is owed in taxes and what’s actually collected.
- Rettig said the gap could possibly exceed $1 trillion a year, far higher than the official estimate.
- See more stories on Insider’s business page.
While the IRS’ current official estimate of the tax gap – taxes owed but not collected – is $441 billion, the actual number could be a lot higher.
“I think it would not be outlandish to believe that the actual tax gap could approach and possibly exceed $1 trillion per year,” IRS Commissioner Charles Rettig said in a Senate Finance Committee hearing on Tuesday.
Rettig also referenced a recent study by IRS researchers and economists looking at the top 1% of taxpayers, which found that “collecting all unpaid federal income tax from this group would increase federal revenues by about $175 billion annually.” He said that study looked at just two things associated with the top 1% – pass-through entities and offshore income.
He also said the official tax gap estimate is from data that spans 2011 to 2013; things like virtual currency have sprung up since then.
Sen. Ron Wyden, the committee’s chair, asked what the IRS could do with additional funds. Rettig said $1 billion could help the agency bring on 4,875 enforcement personnel; over the last decade, he said, they’re down about 17,000 enforcement personnel, so that gap still realistically couldn’t be filled for a year.
President Joe Biden’s “skinny budget” proposal on Friday includes a $1.2 billion increase to the IRS budget, while Sen. Bernie Sanders has put forward legislation that would raise taxes and plug loopholes.
Wyden also asked if Rettig needed any changes in regulations or statutes. Rettig said he wants more information reporting.
Taxes – and who are and aren’t paying them – have been a hot-button issue recently. Biden has been eyeing an increase to the corporate tax rate, and has also said that Americans making over $400,000 could see an increase.
There is also a myriad number of methods that the ultra-wealthy take to avoid their taxes, according to inequality expert Chuck Collins. A whole industry – what Collins calls the “wealth defense industry” – has ballooned around helping the wealthy hide their assets.