Charles O. Rossotti, Natasha Sarin (Pennsylvania) & Lawrence H. Summers (Harvard), Shrinking the Tax Gap: A Comprehensive Approach, 169 Tax Notes Fed. 1467 (Nov. 30, 2020):
Over the course of the past year, we have written independently about the substantial revenue potential of a significant investment in tax compliance. In several articles, we have estimated that overhauling the IRS — by increasing effectively allocated examination resources, filling the holes in information reporting of income that cannot now be cross-checked against third-party reports, and investing in technology so the IRS is better able to leverage the information it collects — can raise well over $1 trillion.
The Congressional Budget Office, too, recently acknowledged that additional compliance efforts will be high-return investments on behalf of the government. Its projections are based on conservative estimates of traditional enforcement approaches and therefore show smaller (although still significant) revenue gains than our proposals, which describe more far-reaching improvements to how the IRS does business.
In this short article, we come together to provide some detail about the steps a new administration should take to attack the tax gap. Many useful actions can be taken through near-term executive actions. More fundamental changes are likely to require legislation. These reforms will not only generate major amounts of long-term revenue from taxes already on the books but, equally important, they will create a system that is fairer to the majority of compliant taxpayers and provide a far sounder foundation for our federal tax system, which accounts for close to a fifth of the entire U.S. GDP.
Combining the insights of our past work, we reach the conclusion that investing less than $100 billion in the IRS over a decade will generate $1.2 trillion to $1.4 trillion in additional tax revenue, primarily from high-income individuals, who are disproportionately responsible for underpayment of owed tax liabilities. ...
Overall, we believe a top priority of tax reform efforts should be improving tax administration. Executive action can be undertaken immediately and should be coupled with a comprehensive legislative proposal that mandates that the IRS address the tax gap by greater audit scrutiny on the most noncompliant taxpayers, an increase in information reporting, and sustained investment to upgrade technology. The result will be well more than $1 trillion in additional tax revenue over the course of a decade; and, even more importantly, a more efficient and equitable tax system.