Hello Hellblazer,
Thanks for an interesting question, one who's relevance grows as we
all get closer and closer to that fateful April 15th deadline.
The US government has made suprisingly few careful estimates of what
is known as the "tax gap" -- the gulf (or chasm, perhaps) between what
is actually collected, and what is actually owed.
Four official estimates are available for the years 1985, 1988, 1992,
and 1998.
The first three are included in a hard-to-find, hard-to-download IRS
document, "Individual Income Tax Gap Estimates for 1985, 1988, and
1992" (April 1996). The report can be found here:
http://www.irs.gov/taxstats/article/0,,id=96655,00.html
but it exists as a downloadable, exe file at the very bottom of the
page. The file name is: 92D1415.EXE
Click on it, download it to your computer, and then click on the
downloaded file, and it will self extract into a Wordperfect document
(how simple is that?)
Here are two extracts from the report: the Executive Summary, and the
key data for the tax gap:
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EXECUTIVE SUMMARY
This report presents current Internal Revenue Service estimates of
the individual income tax gap. Both gross and net tax gap estimates
are presented. The gross tax gap is the amount of "true" tax
liability for a particular tax year that is not paid voluntarily and
timely. The net tax gap is the gross tax gap minus the amount of tax
remitted late or collected by IRS through its enforcement activities.
The estimates relate only to payment of tax on income earned in legal
activities. For example, the income tax due but not paid on income
from distribution of narcotics is not included.
Both gross and net tax gaps consist of three main components:
nonfiling, underreporting, and underpayment. The nonfiling gap is the
amount of tax liability owed by taxpayers who do not voluntarily and
timely file returns. The underreporting gap is the amount of tax
liability not voluntarily reported by taxpayers who do file returns.
The underpayment gap is the amount of tax liability that individuals
report on their tax returns, but do not pay voluntarily and timely.
Our estimates of the gross individual income tax gap for tax year
(TY) 1992 range from $93.2 to $95.3 billion. Of this amount, the
nonfiling gap accounts for an estimated $13.5 to $13.8 billion. The
underreporting gap is estimated to account for another $71.3 to $73.1
billion, while our estimate of the underpayment gap is $8.4 billion.
We estimate total "true" individual income tax liability to be $550.2
to $552.3 billion for TY 1992. Therefore, our estimates of the
overall individual noncompliance rate (the gross tax gap as a
percentage of the "true" tax liability) for TY 1992 range from 16.9 to
17.3 percent.
The net tax gap is the gross tax gap less amounts remitted late or
collected as the result of enforcement. We estimate that IRS
enforcement actions will eventually bring in $14.9 billion of TY 1992
revenue. Of this amount, an estimated $3.2 billion relates to the
nonfiling gap, $6.9 billion to the underreporting gap, and $4.8
billion to the underpayment gap. Hence our estimates of the net tax
gap for TY 1992 range from $78.3 to $80.4 billion. Of this amount,
the net nonfiling gap accounts for an estimated $10.3 to $10.6
billion. The net underreporting gap is estimated to account for
another $64.4 to $66.2 billion, while our estimate of the net
underpayment gap is $3.6 billion.
Previously published IRS individual income tax gap estimates were
based primarily on compliance data for TY 1982 and earlier years. The
estimates presented in this report are derived from more recent
compliance data, particularly Taxpayer Compliance Measurement Program
(TCMP) examinations of individual income returns filed for TY 1985 and
TY 1988, and the TCMP survey of nonfilers for TY 1988. The current
estimates also reflect changes in tax law including changes from the
Tax Reform Act of 1986 and the Omnibus Budget Reconciliation Act of
1990.
-----
A. Gross Tax Gap
Table 1 presents our estimates of the gross individual income tax gap
by main gap components for tax years 1985, 1988, and 1992. The
estimated gross gap ranges from $68.9 to $70.4 billion for TY 1985,
from $79.3 to $80.9 billion for TY 1988, and from $93.2 to $95.3
billion for TY 1992.
-----
All told, the IRS estimates that 17-18% of taxes that are due do not
get paid. The report gives a great deal of additional detail on which
categories contribute how much to the tax gap, so I certainly
recommend downloading the full report if you are interested in more
information.
It's important to note that this report focuses exclusively on
individual taxes, and does not include an estimate of unpaid/underpaid
business taxes (but we all know how honest *they* are...!) or other
tax categories.
----
A more recent IRS document, "IRS MOVES TO ENSURE FAIRNESS OF TAX
SYSTEM;RESEARCH PROGRAM WORKS TO INCREASE COMPLIANCEPROGRAM
EFFECTIVENESS, REDUCE BURDENS ON TAXPAYERS" can be found here:
www.irs.gov/pub/irs-soi/newsrelease-ir-02-05.pdf
with updated tax gap information for 1998 (the most recent estimate
available):
"The gross tax gap, which includes amounts associated with non-filing,
underreporting and underpayment of all taxes (individual, corporate,
employment and estate) is estimated at $278 billion for tax year
1998."
Note that this estimate now includes other tax categories, besides
just individual tax, so it is not directly comparable to earlier
numbers.
This same document also reports on the plans of the IRS' "National
Research Program" to get a better, more up-to-date handle on missing
tax dollars -- sort of fixing the information gap on the tax gap, if
you will.
-----
I spoke with one of the program directors in the research office about
the $278 billion figure, trying to track down a report that would
serve as a source for the data. He told me very frankly that this was
a back of the envelope type of calculation that was generated due to
intense political pressure to "come up with a number". It is not part
of any formal IRS study, though it has certainly entered the
literature as an oft-quoted statistic.
----
That's about all there is on this topic...the IRS official was almost
apologetic that we, as a country, didn't have more and better
information, but the presumption is that the new research effort will
go a long way towards correcting that.
I hope this meets your information needs. If for any reason you feel
some additional effort is warranted, let me know how I can be of
service, but posting a "Request for Clarification".
search strategy: Google search on: IRS statistics "tax gap" |
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