We want to thank in advance anyone who offers support and/or constructive suggestions for our proposal to Shrink the Tax Gap.
Former IRS Commissioner Charles Rossotti’s plan to shrink the tax gap should be the centerpiece of any serious effort to reform our tax system. We have focused far too little on how we actually collect taxes. As a result, taxpayer confidence in the system has eroded and our ability to collect revenue efficiently has deteriorated. This well thought out plan provides the new Administration with a practical and comprehensive framework to shore up our tax system. Addressing the tax gap will improve both the fairness and efficiency of our tax system.
Charles Rosotti has produced a striking and compelling analysis of the extent to which our escalating budget deficits could be reduced through enhanced technology and committing to sufficiently resource the IRS in order to deal with the growing Tax Gap. This well thought through proposal deserves immediate attention and should receive bi-partisan support in Congress.
I know that almost all Americans feel that we should all pay the taxes that we owe for the services we receive from government. However, the tax gap between what Americans already legally owe, and what is actually paid is enormous and getting worse. With our deficit averaging at least 40% of the total tax revenues, and the fact that our federal government failed to collect $574 billion in legally owed taxes just in 2019, citizens can only shake their head and ask what in the world is wrong with that picture. We don’t need more taxes, we need to just collect what is already on the books.
Charles Rossotti, a former IRS Commissioner and tax expert, has proposed a way to correct this problem that merits everyone’s serious consideration.
Charles Rossotti’s proposals to address the tax gap are extremely thoughtful and well timed. Given his background as a former IRS Commissioner and long-time veteran of the information technology world, he is uniquely qualified to offer such suggestions.
“Shrink The Tax Gap” represents the most practical, balanced, and potentially effective proposal for improving tax compliance developed in recent years.
Building on the well-documented compliance benefits of information reporting, the proposal would provide the IRS with the most up-to-date technology and the sustained and consistent budget resources necessary for its effective implementation. By targeting these resources on the most egregious form of non-compliance (unreported cash income), the proposal adds minimal burden for taxpayers who are already paying what they owe, while raising significant additional revenue from taxpayers who are not.
The specifics of the proposal will undoubtedly evolve as it is debated through in the legislative process, but these key elements should gain broad acceptance and hopefully will be supported by all who believe that a fair and effective tax system is essential for America.
Tax evasion is at the basis of the worst enemy of democracy: luck of trust in government. The moment society believes that there is no fairness in tax collection, the trust in government is severely impaired and then you provide ammunition to populists and similar ideologies.
Today’s technology can provide a relatively simple solution as Charles Rossotti pointedly describes. The 1099 bank statement is a simple, straightforward instrument to achieve full compliance in tax collection and achieve a higher level of fairness of the tax burden.
As current and former CEO of four small-to-medium sized businesses and a responsible taxpayer, it angers me to see how little is being done to close the $600 billion tax gap this year. Unmitigated, this will grow to almost $1 trillion in 2029. Charles, Larry and Natasha’s Tax Notes article presents a compelling and simple plan of action to close this gap.
It is clear that the more than 75% decline in IRS audits of those earning $1 million or more, along with a lack of 1099 reporting by this group, has created an ideal environment for wealthy scofflaws to enrich themselves at the expense of so many others. I hope the new administration reads this article, follows the Shrink the Tax Gap plan and realizes the almost half a trillion dollars in tax revenue gains during their administration’s tenure without raising taxes!
The last of these pay-fors — collecting unpaid taxes — may be off the table for BIF [Bipartisan Infrastructure Framework], but deserves your attention. Each year, about one in six tax dollars goes unpaid. By modernizing the IRS’s 50-year old IT systems and replacing some of the employees the agency has lost due to decades of budget cuts, we could shrink America’s “tax gap” (the difference between what’s owed and what’s paid), which would provide financing for new investments and reduce the need for future tax increases and budget cuts. Modernizing the IRS’s IT systems would also help the IRS provide better customer service.
This idea is more than fair, politically simple, pays for itself over and over and over again, and stops evasions that are unfair. So it’s good for America. Let’s get it done!
This is a no-brainer! Why would we debate tax reform without first collecting the full amount of taxes that are due? In addition to leaving holes in our national, state and local finances, non-payers undermine our overall system of taxation and encourage further cheating. With the adoption of 21st century technology, we should be able to effectively collect and link data to identify undeclared income. The payback should be enormous.
Tax evasion is an enormous problem in the United States, eroding both the government’s capability to raise revenues and the public’s sense that taxes are fair. Rosotti’s proposals would make a big and welcome dent in the incidence of these crimes. The proposals are nuanced and thoughtful, cognizant of recent of trends affecting the IRS and informed by his professional experience in tax administration.
Charles Rossotti – who has a great track record of leadership in both government and business – has laid out a simple, compelling and fair plan to help fund critical needs that won’t pay for themselves. Let’s do this. It’ll make everything else easier.
Charles Rossotti’s proposal to raise tax revenue by enforcing existing law rather than raising tax rates under new law is absolutely the way to go. It has never made any sense to me why we should raise taxes of people who are paying their fair share rather than collecting tax from those who have not paid their fair share. Our debt and deficits are astronomical. We can and should reduce them by investing in IRS increased tax compliance programs that historically have produced a return on investment to the American people of between five and seven dollars for every dollar allocated to increased tax compliance.
Shrink the Tax Gap is a straightforward, actionable proposal that improves the fairness of our tax system and addresses the Federal Government’s need for additional revenues. In today’s digital economy, it is an idea whose time has come and deserves broad bipartisan political support.
Former Commissioner Rossotti is candid about the frustrations he faced — and that for decades his predecessors and successors have faced — in addressing IRS efforts to do more than nibble at the edges of the tax gap. What’s noteworthy is that he’s still on that mission more than 30 years after leaving office. And he’s on to something.
His September 20, 2020 Tax Notes article, co-authored with his longtime colleague Fred Forman, bring together decades of private sector management experience, a deep understanding of technology and its promise, and clear sighted knowledge of the IRS in a comprehensive proposal to empower the IRS to stop nibbling and start chewing through the tax gap. The article starts with a simply stated and compelling “why and how” framework but doesn’t stop there. It goes on to offer a comprehensive and detailed proposal for moving forward.
It’s, replete with data, projections, timelines, deliverables, performance metrics, and budgets. To its credit, the article doesn’t duck issues and the details invite both micro and macro challenges.
But that’s the point. Collecting the billions of dollars that are owned but not paid each year is both the right and just thing to do. It’s a non-partisan endeavor that doesn’t require tax increases. Without minimizing the challenges on several fronts, today’s current and emerging technology enables break-through progress without unduly burdening information reporting requirements on third parties.
The needs and benefits of upgrading IRS systems are obvious and I am certain IRS administration has made the case to Congress. The good news is the size of the debt load is so large that now is a good time to push for the upgrades. System upgrades for the IRS are low hanging fruit for all tax paying Americans and getting the benefits message front and center should result in Congress doing the right thing.
Charles did wonderful things to lift the IRS during his leadership. This proposal is logical and deserves serious consideration. Our IRS systems need to be fit for purpose for the current task.
Former Commissioner Rossotti … [is] correct … about the failure to properly audit partnerships. The field of partnership tax law has greatly expanded in the past twenty or so years and the IRS has not kept up. There is now a large knowledge gap between the partnership specialists in the large law and accounting firms and the IRS LB&I and SBSE divisions who are supposed to do the auditing. That is partially the fault of inadequate funding to pay competitive salaries to attract talent from the outside tax bar but it is also due to the failure of the IRS to develop and structure partnership expertise inside the agency. The IRS Office of Chief Counsel, whose lawyers write the IRS regulations and litigate cases in US Tax Court, has failed over the years to give partnership tax law the same profile and resources as corporation/int’l tax has had for years. The Office of Chief Counsel does not have a separate division devoted to partnerships and a separate associate chief counsel to head such a separate partnership division. It should. The failure to provide for such structural changes has hurt partnership tax law enforcement.
Charles has highlighted an important area for consideration by the new Administration as they search for additional sources of revenue to help fund new programs as well as ongoing operations of the government.
While much of the tax gap is not collectable because of an inability to pay on the part of some taxpayers, Charles appropriately notes the significant funds available if we combine new, non-burdensome reporting requirements with the additional compliance and collection resources necessary to make a significant dent in the tax gap.
The IRS has always been a good investment for the government, returning to the Treasury multiples of the resources provided. Charles’s detailed analysis demonstrates that this is especially true in an area such as pursuing the uncollected taxes that make up the tax gap.
This analysis of the tax gap and action plan for narrowing it are critical for enhancing the effectiveness of the IRS and the fairness of the enforcement of our tax laws.
As someone who has been supporting State and Federal tax and revenue agencies for more than 25 years, this is an impressive and thoughtful proposal.
No one likes paying taxes, but people want to know that everyone is paying their fair share. Rather than raising taxes, this proposal would help ensure that more of the taxes owed are paid, reducing the burden from compliant taxpayers. As you point out, surveys have shown that when individuals and businesses know the IRS has a complete record of their income, they are much more likely to report and pay what they owe. Adding this additional reporting, combined with new automated systems will increase compliance without intrusive audits and add additional fairness into the system.
Our tax system relies on voluntary compliance, and your proposal will increase voluntary compliance without the burden of additional audits.
It was with great interest that I read your material. I believe the IRS has accomplished much in recent decades. System capabilities were upgraded to address specific problems, new programs and systems were delivered to support ACA, electronic filing has reached levels considered only aspirational less than 20 years ago, etc. Budget and staffing cuts have had an impact upon enforcement, but the Service has delivered amazingly well under the circumstances. Despite any accomplishments, across all the decades since I first joined IRS in 1977, the Service has always been playing catch up. I believe the TCAM proposal would close much of the gap between what IRS is today, and what it could be with the right investment.
The initial focus on the single largest source of revenue loss should interest the new Administration and law-makers on Capital Hill. This additional revenue does not require contentious tax policy debate but does assure that whatever policies are in place, the IRS will have the capabilities to better assure the collection of the revenue intended by the policy. One universal principle of tax administration holds that if you speed up the process of collecting taxes owed, you will collect more and at a lower cost. IRS systems have not previously provided the capability to address the small business tax gap with the necessary speed. I believe that TCAM would efficiently deliver that capability for both this major revenue gap and for future broader tax compliance initiatives.
Congratulations on a well-constructed proposal.
Whether you support tax increases or tax cuts, everyone should agree that taxpayers ought to pay what they owe under the law. The federal government loses over $500 billion a year in unpaid taxes – perhaps way more – and it’s long past time to strengthen the integrity of our tax code.
Improving information reporting and better funding the IRS will most certainly help improve tax compliance. This is also one of the very few spending measures that truly will pay for itself. Tax cuts don’t pay for themselves; infrastructure spending doesn’t pay for itself, but measures to close the tax gap actually will.
While it’s still unclear exactly how much revenue can be raised by closing the tax gap, the cost of inaction is high. This is one of those rare public policy no-brainers. It shouldn’t become a victim of partisan politics. The federal government should enforce the law.
A pragmatic and rational detailed proposal to solving a long standing issue with taxes that helps ensure everyone pays their fair share. People, processes, and technology are all weighed and risk-considered at an appropriate level of detail for this initiative. Such a practical well-thought out program approach as this is rare, and should get Congressional and Administration consideration for funding and prioritization.
The Shrink the Tax Gap proposal sets out an elegant solution to a component of the tax gap that has been challenging for the IRS to address fairly and effectively.
First, Shrink the Tax Gap starts with the maxim that transparency increases tax compliance and proposes additional information reporting for a discrete population of taxpayers for whom the revenue impact of unreported income is great.
Second, the proposed Comprehensive Return Analysis process uses this and other historical data to screen out taxpayers who present as low-risk and to minimize false positives, thereby narrowing the IRS’s focus on taxpayers who require closer scrutiny while reducing the likelihood of a compliant taxpayer being subjected to an ultimately “no change” audit. Where there are false positives, the selection models will learn from these instances and be updated.
Finally, the proposal not only improves case selection but also case management and taxpayer assistance. In the latter regard, the proposal contemplates more tailored and specific taxpayer notices, which are more salient to the taxpayer, and acknowledges the ongoing need for personal interaction with taxpayers through emails, chat and telephone, including call-back technology.
This is an impressive, comprehensive, and realistic proposal that deserves serious consideration as we all strive to make our tax system more fair and just.
Charles Rossotti has developed a smart plan for generating a lot more federal income without raising the tax rate of anyone — just by giving the IRS the tools it needs to do a better job at enforcing the existing laws.
He draws on his vast experience in the private and public sectors to craft a practical approach to closing the enormous gap between taxes owed and taxes collected. His proposal deserves to be strongly endorsed by both Democrats and Republicans.
This is an excellent proposal which supports administration of laws already in place and fairness for all. The IRS collects our country’s revenue with an efficient process that must be adequately funded and would generate a several-fold return on those investments. This should be supported by all parties, Democrats and Republicans and Independents. Collected monies, in turn, fund all of the government. Let’s separate how we make policy on spending – which can always change – from collecting revenues and taxes that are clearly due based on the existing structure. Thank you for the granular details in this bipartisan proposal.
These proposals show that experienced people who pay attention to facts and data often have the best ideas for solving seemingly intractable problems with fair, common sense solutions. If we could Shrink the Tax Gap, we could bridge ideological differences over enacting remedies — and maybe even help restore public confidence in effective government.
The tax gap is a longstanding problem that deserves continuing attention. Taking measures to address the tax gap will not only raise needed revenue, but will also enhance taxpayer confidence in the fairness of our tax system that depends upon self-assessment.
In order to help recover some of the taxes not paid by partnerships and sole proprietor businesses, the Shrink the Tax Gap program recommends a new summary 1099 report of total annual deposits and withdrawals on certain financial accounts. This report is similar to other 1099 reports that banks and other financial providers already produce , such as the report on interest income, and would not pose a major technical challenge or burden for the providers.
Charles has a great point here. I testified in Congress several times when I was U.S. Comptroller General on the need and ways to address the “tax gap”. It’s worse now!
We are in need of significant investment in technology and additional resources to support the Internal Revenue Service in achieving its ever expanded mission; notably enforcement of complex and dynamic laws. Moreover, we have learned that coupling these resources with targeted increased information reporting to assist the agency in identifying potential tax avoidance will improve compliance and deter abuse. Charles Rossotti has laid out some thoughtful and constructive proposals to advance the ball in this area.