Tax Evasion
Another significant problem in the American economy is tax evasion. The Internal Revenue Service (IRS) periodically estimates the amount of tax evasion and derives a figure it calls the tax gap: the difference between what Americans owe in federal taxes and what they actually pay. Much of the annual tax gap results from the failure of professionals such as physicians and attorneys to report self-employment income and from the claiming of false deductions by wealthy individuals and families (Braithwaite, 2009). [45]
In January 2012, the IRS released its estimate of the tax gap for 2006. The initial tax gap was $450 billion. After payment of late taxes and certain enforcement efforts, this gap was reduced to $385 billion, still an astronomical figure; tax evasion by corporations amounted for about $70 billion of this amount. The total tax gap is about twenty times greater than the annual economic loss from property crimes such as burglary and motor vehicle theft. In 2006, the federal budget deficit was $248 billion. If everyone had paid the taxes they owed, there would have been no deficit at all, and the federal government in fact would have had a surplus of $137 billion (Pizzigati, 2012). [46]
Despite the huge problem of tax evasion, budget cuts in 2011 weakened the ability of the IRS to enforce the tax code. In 2012, the IRS had 3,000 fewer employees working in enforcement than it had in 2010 (Pizzigati, 2012). [47]
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