The head of the Internal Revenue Service testified that the actual tax gap could be nearly double that of the IRS’s official estimate.
IRS Commissioner Charles Rettig was asked at a congressional hearing about how much tax cheats are costing the United States each year in lost revenue, and he said that it “would not be outlandish to believe that the actual tax gap could approach and possibly exceed $1 trillion per year.”
The most recent published estimate for the U.S. tax gap is $441 billion and based upon three years of data (2011 through 2013). The next estimate is slated to come out next year, according to the IRS. Rettig told lawmakers on the Senate Finance Committee that new streams of wealth, including cryptocurrencies, were not factored into the gap from nearly a decade ago.
“There’s more than 8,600 cryptocurrencies, virtual currencies, in the marketplace, and the market cap worldwide for cryptocurrencies is almost $2 trillion,” he said.
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Rettig said that in addition to not including cryptocurrencies, the published estimate does not include much information regarding foreign-source income or illegal-source income, which he pointed out is still theoretically taxable, and the IRS does chase.
The commissioner also highlighted a study released last month that estimated that the highest-earning 1% of taxpayers owe 36% of unpaid federal income taxes, accounting for as much as an additional $175 billion in the tax gap estimate.
“And that’s associated with only their look at two issues, which were pass-through entities and offshore income associated with the top 1%,” Rettig said.
The tax chief said that the possibility of a $1 trillion tax gap arises when all of the component pieces he discussed were aggregated and when it was considered that another study estimates a $7.5 trillion tax gap over the next decade. He also said there are more component pieces that could be added in that he didn’t reference during his testimony.
Rettig’s remarks come as President Joe Biden pushes for a historic $2 trillion spending package, which will be offset by a hike in the corporate tax rate from 21% to 28%. The plan also aims to boost the global minimum tax applied to U.S. corporations to 21% from between 10.5% and 13%.
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The administration claims that the Made in America plan would add about 0.5% of GDP per year in corporate revenue, which it claims will be enough money to offset Biden’s proposed infrastructure package in 15 years.
