Treasury’s report on proposed tax compliance measures; addressing the “tax gap”

The tax compliance measures are part of President Biden’s recent proposals in the “American Families Plan.”

The tax compliance measures are part of President Biden’s recent proposals.

The U.S. Treasury Department today released a report providing a set of tax compliance measures intended to “increase fairness in the tax system and foster a tax system where Americans pay the taxes they owe.”

The tax compliance measures are part of President Biden’s recent proposals in the “American Families Plan.”

The report—The American Families Plan Tax Compliance Agenda [PDF 402 KB]—describes tax compliance initiatives that seek to close the “tax gap” (the difference between taxes owed and those actually paid).

According to the Treasury report:

  • The tax gap totaled nearly $600 billion in 2019 and is expected to increase to approximately $7 trillion over the next decade (roughly equal to 15% of taxes owed).
  • The magnitude of the tax gap means that compliance initiatives have the potential to raise substantial revenue, while also improving tax progressivity and economic efficiency.
  • Roughly 99% of taxes due on wages are paid to the IRS, but compliance on “less visible” sources of income is estimated to be just 45%.

The tax compliance proposals in the American Families Plan would provide the IRS with the resources and information needed to overhaul and enhance tax administration by:

  • Providing the IRS the resources it needs to address sophisticated tax evasion
  • Providing the IRS with more complete information
  • Overhauling outdated technology to help the IRS identify tax evasion and serve customers
  • Regulating paid tax preparers and increasing penalties for those who commit or abet evasion

It is estimated that these initiatives would raise $700 billion in additional tax revenue over 10 years and $1.6 trillion in the second decade (given that several of the new investments would take years to reach their full potential). 

 

 

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