Closing the Gap

It is a situation that nearly every business owner experiences at some point – things would be so much better if everyone just paid what they owed you. You’re working a lot, your slate is full, but the numbers in the bank dwindle. Apparently, this is something that the government deals with, too, as recently it was reported that the tax gap (the difference between taxes owed and those paid on time) for the years 2014-2016 is estimated at $496 billion annually and that number is estimated to rise to $540 billion annually for 2017-2019.

I don’t want to get into all the numbers involved with this, so please read this article if you
would like to really dig in. Some highlights, though:

• $398 billion of the gap is from underreporting (taxes understated on timely returns). So look at how much money could be received if people just followed the rules.
• $68 billion annually has been estimated to have been collected through late payments and IRS payments during the 2014-2016 period, dropping the gap’s current total to $428 billion.
• In 2021, the IRS collected more than $4 trillion in taxes and penalties. This shows how what they are not collecting is not negligible.

These numbers bring up conversation about the billions that the IRS received in the Inflation Reduction Act, partially to help it close this gap. And if that money actually goes to places that help close the gap, well, that sounds like good business – it would be spending some money to bring in many times more.

So much of the discussion around tax policy becomes quickly polarized. This is easy to understand even beyond the heavy divisions we see, well, everywhere because that policy almost always ends up in some group paying more money in taxes than they were before. It is then not difficult to understand that group being upset by the new rules.

When one looks at these gap numbers, though, maybe it is possible to take a step back and just understand that there is a problem. After all, these taxes are being collected to fund the government. And like any budget, if the money you expect to come in isn’t arriving, then something must be done to try to close that gap so that what must be done can be accomplished. So maybe this need for enforcement can be some common ground and hopefully it can start being handled in a way that pleases (mostly) everyone.

Warmly,

Josh Bousquet
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