Understanding the Revenue Potential of Tax Compliance Investment

Natasha Sarin and Lawrence Summers

No 27571, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a July 2020 report, the Congressional Budget Office estimated that modest investments in the IRS would generate somewhere between $60 and $100 billion in additional revenue over a decade. This is qualitatively correct. But quantitatively, the revenue potential is much more significant than the CBO report suggests. We highlight five reasons for the CBO’s underestimation: 1) the scale of the investment in the IRS contemplated is modest and far short of sufficient even to return the IRS budget to 2011 levels; 2) the CBO contemplates a limited range of interventions, excluding entirely progress on information reporting and technological advancements; 3) the estimates assume rapidly diminishing returns to marginal increases in investment; 4) the estimates leave out the effect of increased enforcement on taxpayer decision-making; and 5) the use of the 10-year window means that the long-run benefits of increased enforcement are excluded. We discuss these issues, present an alternative calculation, and conclude that a commitment to restoring tax compliance efforts to historical levels could generate over $1 trillion in the next decade.

JEL-codes: H0 H2 H22 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-iue and nep-pub
Note: PE
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Citations: View citations in EconPapers (2)

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