New IRS Tax Gap Estimate

The IRS has released new data showing that the federal tax gap-taxes owed but unpaid-was $696 billion in 2022, with a net gap of $606 billion after late payments and enforcement. Despite ongoing political debates, the tax gap has remained steady, accounting for 2.7% of GDP.

Key figures include $514 billion from individual income taxes, $50 billion from corporate taxes, $127 billion from payroll taxes, and $5 billion from estate taxes. The voluntary compliance rate, or the amount of taxes paid on time, was 85%, slightly higher than two decades ago.

While no one supports tax cheating, excessive enforcement can undermine civil liberties. Striking a balance is crucial, as closing the gap entirely would incur high costs and risks IRS errors. Many gaps arise not from fraud but from misunderstandings of the complex tax code.

To reduce the gap without overburdening taxpayers, Congress should aim to simplify the tax code, rejecting new loopholes and reversing recent complicating policies. Simplification would reduce errors, foster growth, and benefit both taxpayers and the government.

Read the full report: https://​www​.cato​.org/​b​l​o​g​/​n​e​w​-​i​r​s​-​t​a​x​-​g​a​p​-​e​s​t​imate

If you would like to speak with Chris, please let us know:

Josh Grossman
Cato Institute
pr@​cato.​org

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