5 Things to Consider in Tax Gap Discussions
                     5 Things to Consider in Tax Gap Discussions 
Improving tax compliance is a major part of the Biden administration's proposal to boost 
physical and social infrastructure revenue. Closing the tax gap - the difference between 
what you owe and what you pay - is a great way to increase your income, but it's not without 
trade-offs, and it's important to do it the right way. We provide the best service for tax 
returns, pay stubs, payroll, financial statements, and tax documents 
Point 1: How big is the tax gap? 
The most recent official IRS estimate of the tax gap is based on data from 2011-2013. 
According to the analysis, the total tax shortfall averaged $441 billion during this period. 
Adding late payments and other collections, the net tax gap averaged $381 billion. Recent 
studies adjusting for inflation and income growth suggest that the current total tax gap is 
about $630 billion. In April, IRS Commissioner Charles Rettig estimated at a congressional 
hearing that the true tax shortfall, after adding in undervalued offshore tax evasion and 
cryptocurrency earnings, is about $1 trillion, But this may be an overestimate. 
 
 
Point 2: What is the Biden administration's proposal? 
President Biden's agenda to improve tax administration has four main pillars: increasing the 
IRS budget, especially in enforcement; expanding reporting requirements for financial 
institutions; investing in improved IRS information technology, and regulating tax filers.  
Point 3: Compliance costs are likely major headwinds and should be 
measured 
A potential downside to increased tax enforcement is higher compliance costs for honest 
taxpayers. A clear example of the trade-off between more revenue from enhanced 
enforcement and higher compliance costs is the increase in audits. More audits will catch 
tax evaders and increase revenue. At the same time, more audits will also subject more law-
abiding taxpayers to the burdensome audit process. Additionally, there is some evidence 
that a hostile tax administration agency reduces trust in that agency, leading to a reduction 
in voluntary compliance in the future. Before investing in any additional enforcement 
measures, lawmakers should weigh the expected new revenue against the additional 
spending and the additional compliance costs such measures may entail. 
Point 4: Which tax enforcement reforms make the most sense? 
The best reforms to the administration of the IRS could increase revenue by closing the tax 
gap while reducing the compliance burden on ordinary taxpayers. Improvements in IRS 
information technology can help achieve this goal. For example, a plan to determine which 
returns should be audited to help catch tax evaders, while keeping fewer already compliant 
taxpayers audited. Strengthening such programs would be worthwhile. Other reforms, such 
as increasing audit rates more generally, may also be worth pursuing, but policymakers 
should have a clearer picture of how these policies will affect compliance costs before they 
are enacted. 
Point 5: Simplification reduces non-compliance and compliance costs 
Changing the IRS administration isn't the only way to reduce the tax gap. Simplifying the 
code can reduce non-payments while reducing the hassle of the filing process. Complex 
refundable tax credits are a common source of tax filing errors and fraudulent returns: 
Restructuring them into simpler social spending programs will reduce those errors and 
allow the IRS to focus on tax collection. At the same time, codes for low tax rates and fewer 
personal deductions can save taxpayers time while reducing the return on tax evasion.