Last week, the IRS released a report on the estimated "tax gap," or money that people legally owe in taxes but evade paying.
For 2006 (the most recent year calculated), the gap stood at $450 billion, an increase from 2001's estimated tax gap of $345 billion.
Keep in mind, this isn't money people legally avoid paying by using tax shelters like an
IRA or
401(k). This is tax revenue illegally unpaid thanks to things like offshore bank accounts and unreported cash receipts from businesses.
The IRS only issues these reports every five years, and each report details just one year. But let's use some assumptions. Assume 2001's tax gap of $345 billion was reflective of the 2001-2005 period, and 2006's $450 billion gap was reflective of the 2006-2011 period. In total, that's $4.4 trillion in lost tax revenue over the last decade.
Now, this is a rough estimate at best. I
used the IRS' old data last year to estimate the decade's loss from tax evasion at $3 trillion. The real figure, which is almost impossible to know, is probably somewhere between $3 trillion and $5 trillion. Either way, what I wrote last year holds true:
Put that money in perspective. Tax evasion in the last decade cost an amount roughly equivalent to the Bush tax cuts, the Obama stimulus, and the wars in Iraq and Afghanistan... combined. It's amazing more people aren't outraged about this stuff. Rather, they likely would be if they knew about it.
As long as there are taxes, there will be tax evasion. It will never be eradicated. The question is whether the tax gap can reasonably be reduced from current levels.
If it can, we're not trying hard enough. As David Cay Johnston recently wrote in Reuters, the IRS' budget is being cut by 5%, which will likely
increase tax evasion through fewer enforcement officers. He explained:
IRS data show that auditors assigned to the 14,000 or so largest corporations found $9,354 of additional tax owed for every hour spent testing
tax returns in the 2009
fiscal year. The highest-paid IRS auditors make $71 an hour. Based on a 2,080-hour work year, that works out to around $19 million of lost revenue annually for every senior corporate auditor position cut from the payroll.
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