IRS: Tax gap ballooned to $450 billion

On Capitol Hill, the top tax-writers in both chambers said the new IRS data underscored the need for overhauling the tax code and making it simpler.

{mosads}“As a result, not only will compliance increase because average Americans will make fewer mistakes on their tax returns, but it will create greater certainty, which is key to job creation,” said a spokeswoman for Rep. Dave Camp (R-Mich.), who chairs the House Ways and Means Committee.

In a release, Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, pointed out that the $450 billion in the 2006 tax gap would have funded the Veterans’ Affairs Department four times over in 2011.

For further comparison’s sake, around $500 billion in defense cuts are due in 2013, as a result of last year’s deal to raise the debt ceiling.

“In an era when we’re squeezing the federal budget for every dollar of savings, we have to make every effort to recover these lost funds.  We simply can’t afford to lose $450 billion while we’re asking each American to pitch in to reduce the deficit,” Baucus said.

The 2006 tax gap also far exceeded the budget deficit for that year, which was some $248 billion. The federal government has run deficits north of $1 trillion since 2009.

In its release, the IRS said that the underreporting of income accounted for the vast majority of the tax gap. Taxpayers simply not filing or not paying enough also played a role.