Examination of the 2001 IRS Tag Gap Estimates' Effects on Small Businesses

摘要

The IRS estimates that the tax gap, the difference between the amount of Federal taxes owed and the amount of Federal taxes actually paid, was $345 billion for 2001 before collection and enforcement activities and $290 billion after these activities. The rate of voluntary compliance in the United States is approximately 84 percent. These tax gap estimates are important because the tax gap (1) is one measure of the efficiency of the Federal tax system, (2) contributes to the budget deficit and drives tax rates up, and (3) undermines confidence in the Federal tax system and contributes to further noncompliance. Further, the tax gap represents an equity issue, because taxpayers who report their income accurately subsidize taxpayers who do not. The IRS tax gap estimates suggest that underreporting of income by small businesses is a significant problem representing $83-99 billion (nearly one-third) of the reported tax gap. However, there are problems with the tax gap estimates; the most significant of these problems is that the tax gap estimates fail to account sufficiently for the large corporation tax gap and the international tax gap. These problems are especially important because relying on IRS figures alone creates the impression that small businesses are the primary cause of the tax gap.