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Treasury official warns of $7 trillion tax gap over next decade in pitch for more IRS funding

Multiple forms printed from the Internal Revenue Service web page that are used for 2018 U.S. federal tax returns are shown.
Multiple forms printed from the Internal Revenue Service web page that are used for 2018 U.S. federal tax returns are shown. (AP Photo/Keith Srakocic, File)

Treasury official warns of $7 trillion tax gap over next decade in pitch for more IRS funding

June 10, 03:56 PM June 10, 03:56 PM

The Treasury Department projects that there will be a $7 trillion tax gap over the next decade and is hoping to reduce that through increased funding for the Internal Revenue Service.

Deputy Assistant Secretary for Tax Policy Mark Mazur testified before a House Ways and Means subcommittee that the IRS estimated there was a $381 billion net tax gap between 2011 and 2013.

“If we take those numbers and extrapolate them to today, assuming that the estimated tax gap grows with the economy, the estimated tax gap would be around $580 billion for 2019,” Mazur told lawmakers. “Over the coming decade, if we use the same sort of estimates, the gross tax gap is projected to total $7 trillion — obviously, that is a lot of money.”

BILLIONAIRES CALLING FOR HIGHER TAXES ON WEALTHY PAID LITTLE OR NO INCOME TAX, LEAK REVEALS

Mazur said that, in part, the “large and growing” tax gap is because of a sustained period of underinvestment in the IRS and said the budget has been slashed by some 20% in real terms over the past decade. He pointed out that because the IRS budget covers personnel, staffing has declined and so have audit rates.

“At the moment, the IRS has insufficient resources to adequately meet enforcement and service challenges,” Mazur testified.

IRS Commissioner Charles Rettig had previously testified that it “would not be outlandish to believe that the actual tax gap could approach and possibly exceed $1 trillion per year.” He said that new streams of wealth, including cryptocurrencies, were not factored into the gap from nearly a decade ago.

The Biden administration has proposed allocating $80 billion to the IRS over the course of the next decade to hire more staff and give it more authority to crack down on those who are evading taxes. The administration has anticipated that it can raise $700 billion in revenue over 10 years through that alone.

Mazur called the White House plan to infuse billions into the IRS a “transformative investment.”

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The Treasury official’s testimony comes the same week that troves of private taxpayer information about the country’s wealthiest billionaires were leaked to the media.

Republicans on Wednesday sent letters to Rettig and the Treasury inspector general for tax administration demanding investigations into whether the files were leaked by an employee. Douglas O’Donnell, the IRS’s deputy commissioner for services and enforcement, told the committee on Thursday that the matter has now been referred to the Justice Department.

“Treasury announced yesterday that they made investigative referrals to their Office of Inspector General, as well as the FBI and the United States Attorney’s Office for the District of Columbia,” he said. “We fully support any investigation undertaken and will urge the investigative authorities to keep Congress appropriately informed of their findings.”

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