Shrinking the Tax Gap: Approaches and Revenue Potential
Between 2020 and 2029, the IRS will fail to collect nearly $7.5 trillion of taxes it is due. It is not possible to calculate with precision how much of this “tax gap” could be collected. This paper offers a naïve approach. The analysis suggests that with feasible changes in policy, the IRS could aspire to shrink the tax gap by around 15 percent in the next decade—generating over $1 trillion in additional revenue by performing more audits (especially of high-income earners), increasing information reporting requirements, and investing in information technology. These investments will increase efficiency and are likely to be very progressive.
We are grateful to Joe Kupferberg for excellent research assistance. We thank Jason Furman, Michael Knoll, John McClelland, Leslie Samuels, and Charles Rossotti for helpful conversations. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.