One of the most fair and efficient ways for policymakers to raise revenue would be to close some portion of the “tax gap.” The tax gap is the difference between taxes paid and taxes owed by law. In this primer, we answer the following questions:
Reducing the tax gap could raise additional revenue without increasing taxes and should be a key legislative priority for both parties. In future pieces, we will discuss ideas and options for how to close it.
- How Big is the Tax Gap?
- Why Is There a Tax Gap?
- Which Unpaid Taxes Contribute to the Tax Gap?
- Who Contributes to the Tax Gap?
How Big is the Tax Gap?
The Department of the Treasury recently estimated a "gross tax gap" of $630 billion in tax year 2019, with over $3.6 trillion of taxes owed but only about $3 trillion paid voluntarily. After accounting for $76 billion of additional revenue from Internal Revenue Service (IRS) enforcement activities and late payments, Treasury estimates the “net tax gap” totaled $554 billion in 2019, which is 2.6 percent of Gross Domestic Product (GDP), or 15.2 percent of total tax revenue owed.