Unpaid Taxes Worth Half U.S. Deficit


Earlier this year, Democrats successfully garnered $600 billion in tax increases over the next decade. Not satisfied with this redistribution of the American people’s money, they are now pushing for another $50 billion to replace a portion of sequestration cuts.

America has a spending problem, not a tax revenue problem, so tax increases should be out of the question as Congress examines a possible budget deal. However, that does not mean the code should remain as it is. Loopholes and credits create unfair market distortions that reward special interests at the expense of the American people as a whole.

Rather than raise taxes, however, two IRS reports show that deficit reduction could be achieved through better oversight of the tax code.

The first report – an audit of the IRS – shows the Earned Income Tax Credit (EITC) sent at least $110 billion improperly out the door in the last decade. According to The Hill, the tax code’s complexity is a large part of the reason:

The other report, published in 2012, showed that in 2006 14.5% of taxes legally owed to the federal government went unpaid, and had to be compensated by those who actually paid their taxes. As calculated by Just Facts, “the 2006 tax gap was an average of $3,846 for every household in the U.S.” The total in unpaid taxes was $385 billion – well over half of the projected deficit for 2014.

The practical impact of this knowledge is simple: There is no need for tax increases. Levying additional taxes will damage the economy, and further harm Americans already suffering from a stagnant economy.  Narrowing eligibility for various loopholes and tax credits would make oversight much easier, and eliminating the most-abused loopholes (and correspondingly lowering rates) would create both economic gains from a simplified tax code and bring in more money to the Treasury, remedying two problems with one solution as the deficit shrinks.

Once that’s accomplished, political parties can revert to the traditional “tax increases vs. tax reform” fights. But better oversight should be a bipartisan concept both sides can agree on.