The Tax Gap

The U.S. federal tax is BIG: $5 trillion. Unfortunately, approximately 20% don’t pay their taxes.

Some interesting facts:

• There are about 150 million taxpayers, but only 75 million people pay taxes!

• Corporate taxes $3.3 trillion (82.5%)

• Individual taxes $1.7 trillion to the IRS (42.5%)

• Of the $5 trillion federal taxes, $4 trillion is paid. $1 trillion is not paid. That is called the “Tax Gap.” (The numbers are estimates.)

• Of those who don’t pay taxes or underpay taxes, individuals are about 90% of the Tax Gap (vs. corporate.)

There are several great essays about the Tax Gap.

Is the Tax Gap interesting? No. But it’s important. The reason is simple: every owed tax dollar helps the United States of America.

The people who don’t pay their taxes, including under-reported, ends up hurting America.

Imagine there’s a bill at the restaurant and there are 5 people. The check comes in: $400. That means each one owes $80. But one of the diners doesn’t pay. The bill still owes the same amount: $400. The honest one’s end up paying $100 each.

A meal at the restaurant needs money to buy food, operations such as rent, staff, and a bunch of other things. The cost is irrelevant to the bill. (It IS relevant to Congress, the President, and everyone.)

The same thing is the U.S. Government. The U.S. bill is the same no matter whether the tax returns is $5 trillion or $4 trillion. Thus, if the federal budget ends up being $6 trillion, taxes go up by $2 trillion instead of $1 trillion.

[By the way, the federal budget should be under the $4 trillion, in my opinion. But that is a different topic.]