“There Are No Loopholes”: Public Reacts To Whopping $688 Billion in Unpaid Taxes

Amy LewisNov 9, 2023

Minute Read

The 2021 tax season revealed a troubling trend for the IRS. With a whopping $688 billion in unpaid taxes, it’s clear that a sizable number of Americans are finding ways to keep Uncle Sam at bay. Let’s explore the details of this debate.

The Tax Gap Widens

The alarming tax gap reported by the IRS, amounting to $688 billion for the year 2021, clearly highlights the discrepancy between anticipated and actual tax receipts. This vast sum has raised concerns over the potential impacts on the United States’ financial health. It hints at systemic issues within the tax collection framework that demand immediate attention.

IRS Reinforces Collection Efforts

Editorial credit: Andrew F. Kazmierski / Shutterstock.

Confronted with a daunting tax deficit, the IRS is ramping up its collection game. Innovative strategies, coupled with intensive scrutiny of financial disclosures, signify the agency’s determined effort to reclaim billions in outstanding taxes. These enhanced efforts signal a new era of tax enforcement poised to tackle the complex challenges of modern revenue service.

Deliberate Tax Avoidance Exposed

The IRS’s revelation of deliberate tax avoidance throws a harsh spotlight on a concerning trend among taxpayers. This behavior is far from being a series of isolated incidents. It indicates a broader willful neglect of tax liabilities, undermining the integrity of the tax system and potentially eroding the public trust in the nation’s financial infrastructure.

The Main Offenders

The IRS identifies the core issues contributing to more than 70% of the tax gap: late payments, underreported income, and overt tax evasion. These avoidable discrepancies constitute a substantial portion of the overall deficit. This figure underscores a need for more robust enforcement and compliance measures to deter such actions.

Tax Gap Growth Trend

The escalating tax shortfall, surging by $140 billion from 2017 to 2021, parallels the country’s economic growth trajectory. This persistent growth in unpaid taxes has occurred despite a booming economy. It suggests a widening gap between the actual tax responsibilities and the amounts being reported to the Treasury.

Gig Economy’s Tax Challenges

The increase in gig and freelance work in the wake of the COVID-19 pandemic has introduced significant complications for tax collection agencies. The informal nature of such income streams has worsened the challenge for the IRS. This has fueled a substantial portion of the overall tax gap as these earnings often go unreported.

Paying Taxes Seen as Patriotic

Historically seen as a civic duty, the act of paying taxes has been equated with patriotism among Americans. However, the IRS reports that its collection rate for 2021 dipped to 86.3%. This reveals a disconnect between the cultural value of paying taxes and the practical follow-through.

Avoidance Tactics Uncovered

The number of tax avoidance strategies uncovered by the IRS covers many strategies. These include the establishment of shell entities, the exploitation of offshore tax havens, and the intentional omission of business income. These schemes represent a complex web of avoidance behaviors that challenge the IRS’s enforcement capabilities.

Unreported Small Business Income

The IRS’s 2021 tax collection efforts were significantly undercut by a lack of income reporting from small business owners. An estimated $182 billion has gone unrecorded. This substantial figure reflects not only the magnitude of the compliance issue but also the critical need for targeted measures to improve reporting among small business sectors.

Closing the Tax Compliance Gap

Acknowledging the extent of the tax compliance gap, IRS officials are committing to employing all available means to bridge it. This initiative is seen as vital for restoring balance to the nation’s fiscal mechanism. The IRS claims that these measures will help to ensure fair tax collection for everyone.

A Call for Compliance

Commissioner Danny Werfel’s call to action focuses on the imperative to address and fix the shortfall from the previous fiscal year. His vocal commitment to improving taxpayer compliance sets the tone for the IRS’s strategic focus in the coming years. He claims that the IRs will focus on ensuring people follow tax regulations.

Focus on High-Earners

Targeting the rich, the IRS is preparing to introduce strict audits. These will be specifically designed to counteract tax evasion among high-income earners. This initiative represents a directed effort to curtail the opportunity for income obfuscation and tax non-payment among those with the most significant tax liabilities.

Fresh Faces at the IRS

As the IRS ushers in a new wave of senior executives, the agency is optimistic that these new appointments will usher in enhanced operational efficiencies. Melanie Krause, representing this new guard, anticipates that this infusion of new perspectives will streamline the tax collection process. This could potentially transform the agency’s approach to enforcement and compliance.

Mandatory Reporting for Freelancers

The IRS’s mandate for tax detail submission on gig economy platforms is set to be enforced from 2023. This means that freelancers will have to exercise greater vigilance in reporting their earnings. This requirement is expected to tighten compliance among independent workers, who form an increasingly significant part of the workforce.

Third-Party Reporting

Anticipating future directives, the IRS is considering compelling third-party apps to disclose subscriber earnings. Natasha Sarin is a proponent of this approach. She argues that transparency will lead to more honest reporting by taxpayers who understand that the IRS could easily cross-reference their declared incomes with the data provided by these platforms.

Investing in America or Bulking Up Bureaucracy?

As the IRS signals a desperate need for additional agents to tackle the tax gap, it’s met with polarizing perspectives. One user argues, “This is why we need the added IRS agents. Pay your taxes and help support America,” framing tax payment as a form of patriotism. However, critics are wary, seeing this potentially expanding an already bloated bureaucracy.

The Great Fiscal Illusion

Some users have denounced the deficit, suggesting that government overspending is the real issue: “The government should just spend 688 billion less.” This argument hinges on the belief that the shortfall could be reducing the fiscal footprint of the government itself. This is a point of view that supports a leaner state apparatus over intensified tax enforcement.

Tax Code Complexity

Critics of the current tax system express frustration over its complexity. “There are no loopholes. Only credits and deductions. The tax code is purposely written to be ununderstandable and murky.” This standpoint sees the tax code not as a neutral set of rules but as a deliberately opaque maze riddled with “carrots, sticks, and kickbacks.” This user argues that these facilitate evasion and avoidance.