Treasury Secretary Janet Yellen calls estimated $7 trillion tax gap 'shocking and distressing'
Treasury Secretary Janet Yellen urges the rich to pay their fair share of taxes and fill the tax gap by improving tax compliance and audits.
“It is really shocking and disturbing to see that estimates suggest that the gap between what taxes we collect on current taxes and what we should be collecting - if everyone were paying for taxes due - is going to be over a decade amounts to over $ 7 trillion, "Yellen said during the future of the Atlantic economy on Tuesday." We are trying to take meaningful steps to fill that void.
The tax gap that would accumulate between 2020 and 2029 is estimated at $ 7.5 trillion, according to a 2019 paper by former Treasury Secretary Larry Summers and economist Natasha Sarin. The study found that the IRS could reduce the tax gap by around 15% over the next decade and generate over $ 1 trillion in additional revenue by conducting more audits specifically targeted at those involved in the Stand on top.
Treasury Secretary Janet Yellen and Vice President Kamala Harris attend a virtual roundtable with attendees from local black chambers of commerce from across the country to discuss the importance of passing the American bailout plan in the South Court Auditorium in the White House complex on Friday February 05, 2021 in Washington, DC. (Photo by Jabin Botsford / The Washington Post via Getty Images)
Recently, Internal Revenue Service Commissioner Charles Rettig set an even higher price, saying the tax gap "could approach and potentially exceed $ 1 trillion a year," added Rettig.
In his American Families Plan, Biden is giving the IRS $ 80 billion for enforcement to generate $ 700 billion in revenue over a 10-year period by minimizing the tax gap. The increased revenue would come on top of tax hikes for businesses and high net worth individuals to get them to "do their fair share," Yellen said.
"Fairer tax legislation in exchange for a higher quality of life"
Biden's call for IRS funding comes after years of budget and staff cutbacks for the agency. Since 2010, the IRS has lost 21,000 employees and, taking inflation into account, its budget has decreased by around 20%. Examination staff has decreased by a third over the same period, making the 2019 exam rate for individuals the lowest in over 20 years.
Read more: Top 10 Tax Mistakes - And How To Avoid Them
The $ 80 billion would be used to revamp technology to improve compliance, and hire and train auditors for complex investigations into businesses, partnerships and high net worth individuals. Banks would also need to report inflows and outflows from taxpayers' accounts to provide the IRS with additional information on business income and expenses so that audits can be better targeted
"A well-functioning tax system requires all taxpayers to pay what they owe," the finance department said when the plan was revealed. "However, an unfortunate feature of the current system is the asymmetrical compliance with tax law due to the nature of the income generated. The non-compliance is focused on the top."
The richest Americans report no more than a fifth of their taxable income with sophisticated forms of tax evasion, according to a recent study by the National Bureau of Economic Research (NBER).
"Fairer Taxes in Exchange for Better Quality of Life for Most American Families?" Yellen said in a statement when Biden's tax plan was revealed. “There are some economic compromises that are difficult. This is not one of them. "
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Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova
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