A think tank proposed $700 billion in cuts that it says should have bipartisan support in the legislature as Congress prepares for a new term that could focus on taxing and spending policies, including extending the debt limit and the 2017 tax cuts.
The Committee for a Responsible Federal Budget proposed a list of cuts and revenue increases that could save $700 billion over the next decade. Some are as simple as closing loopholes in federal programs and making sure Americans pay their full tax bills. Others are more complex.
“But not all deficit reduction needs to be contentious,” according to the report. “Some of these policies already enjoy broad bipartisan support, or at least should.”
In addition to cuts, the group proposed some options for raising revenues without raising taxes.
“On the revenue side, improving tax compliance allows policymakers to raise revenue without raising taxes,” according to the report. Every president from Reagan to Biden – including President Trump – has proposed increasing funding to the IRS and enacting other measures to reduce the “tax gap,” or the difference between taxes owed and taxes actually collected.
The Internal Revenue Service published its projections that the net tax gap after enforcement actions fell from $617 billion in 2021 to $606 billion in 2022.
The IRS projects that taxpayers owed $4.6 trillion in total tax liability in 2022. About $3.9 trillion of that was paid on time and without penalty. Enforcement actions and late payments led to an additional $90 billion in collections.
Most of the tax gap comes from individual income taxes, which accounted for 74% ($514 billion) of the gross tax gap in 2022. Of this amount, underreporting of income accounted for 74%, most of which came from underreported business income ($194 billion) and non-business income ($87 billion).
The tax year 2021 and 2022 tax gap projections translate to about 85% of taxes paid voluntarily and on time.
The tax gap has been an entrenched problem for decades.
“The results underscore there remains a sizable tax gap between taxes that are legally owed but aren’t actually being paid,” IRS Commissioner Danny Werfel said. “While the bottom line for the new tax gap numbers shows the increase basically reflects growth in the larger economy, the size of the gap also vividly illustrates the ongoing need for adequate funding for the IRS.”
Congress passed the Inflation Reduction Act in 2022. Lawmakers appropriated about $80 billion to the IRS through the Inflation Reduction Act to expand operational support, modernize systems, enhance customer service and improve tax enforcement.
