US Study Forecasts $9 Trillion Tax Gap In Next Decade
A recent study by economist Richard Cebula forecasts a cumulative tax gap of approximately $9 Trillion in the years 2017-2026 in the United States. The tax gap reflects the difference between taxes owed and taxes actually paid. The 2017 shortfall is projected to be $693 Billion, which represents about one-fifth of the $3.3 Trillion in taxes collected.
Several reasons for the increasing tax gap are the growing number of self-employed Americans and contract employees who don’t have their taxes withheld and the growing underground cash economy. Millions of American residents are either under-reporting their income, or in the case of the underground economy, not reporting it at all.
The cost of complying with our income tax code also burdens the American economy. Tax filing software designer Philip Schlosser estimates that annual tax compliance costs are approaching $1 Trillion.
A recent study by the Tax Foundation reveals that 82% of the public favors a complete overhaul of the federal tax system. A plan that calls for a complete tax overhaul , the FAIRtax Act (HR-25), is filed in the House Ways and Means Committee. It calls for the elimination of the federal income tax code, including the Social Security and Medicare payroll taxes, and replacing it with a consumption tax at the point of purchase. The FAIRtax plan was favored by Vice President Mike Pence when he served in Congress.
FAIRtax would dramatically lower compliance costs and tax evasion by collecting taxes at the point of purchase and eliminating the cumbersome personal income tax returns. Businesses which sell new retail goods or offer services will collect the consumption tax and remit it to state revenue departments, which in turn remit the taxes collected to the U.S. Treasury.
Read the Cebula study here