IRS Blames Tax Complexity for Non-Compliance

February 15, 2006

The IRS yesterday released results of a study stating that in 2001, $345 billion in taxes went unpaid. From USA Today:

The IRS said that unpaid taxes amounted to $345 billion in 2001, due mostly to underreporting of taxes owed.

The statistic refines an estimate released last year that found taxpayers failed to pay between $312 billion and $353 billion in 2001.

Late payments and IRS collections will recover about $55 billion in unpaid taxes, leaving a net gap of about $290 billion.

The IRS estimated the tax gap, the difference between taxes owed and taxes paid, after auditing 46,000 people and combining those findings with previous estimates of unpaid corporate, payroll and unemployment taxes.

What is to blame for this high degree of noncompliance? IRS Commissioner Mark Everson blames the complexity of the tax code. More from USA Today:

IRS Commissioner Mark Everson said complex tax laws played a significant role.

“Helping taxpayers better understand their obligations under the current tax law will facilitate compliance, but simplifying the tax code would have a big impact on reducing the tax gap,” he said. (Full Story)

Unfortunately, making the tax code simpler does not appear to be a priority of Congress, as politicians on both sides of the aisle appear to enjoy the ability to control society’s allocation of resources through preferences in the tax code. For more on tax reform, visit our special section highlighting the need for simplifying the code and making it more conducive to economic efficiency.

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