Tax Gap & Offshoring Hearing Sheds New Light on Trillions in U.S. Income Stowed Abroad
IRS official testifies that U.S. households account for as much as $2 TRILLION in offshore tax havens; Former IRS Commissioner estimates tax gap could accumulate to $7.5 TRILLION over 10 years
Washington, DC – During today’s hearing of the Senate Finance Subcommittee on Taxation and IRS Oversight, a top IRS official testified that the amount of U.S. money held in offshore accounts – and therefore harder for American tax enforcement officials to track – is double what had been previously estimated. In response to a question from Subcommittee Chairman Sheldon Whitehouse (D-RI), IRS Acting Chief of Research and Analytics Officer Barry Johnson told the subcommittee that U.S. households hold for as much as $2 trillion in offshore tax havens—double what previous research shows.
Also at today’s hearing, a former IRS Commissioner pointed to a staggering amount of tax revenue lost to the so-called “tax gap”—the difference between taxes owed and taxes paid each year. The current official IRS estimate of the size of the tax gap is $441 billion. However, according to testimony of former IRS Commissioner Charles Rossotti, the amount of taxes owed but not paid in 2019 amounted to $574 billion. Rossotti projects a tax gap of that size accumulating to roughly $7.5 trillion over 10 years. And recently, current IRS Commissioner Charles Rettig told a different Senate Finance Committee hearing that the tax gap may be as high as $1 trillion annually. Members of both parties at today’s hearing, including Ranking Member John Thune (R-SD), called for action to close the tax gap.
“Today’s hearing shed new light on the murky world of wealth stashed in offshore tax havens,” said Chairman Whitehouse following the hearing. “We learned of the staggering $7.5 trillion the tax gap will cost us over a decade – revenue that ought to be helping the American people pay for their priorities or reduce the federal debt. We also learned the universe of U.S. income hidden in tax shelters abroad is double what we thought it was. Typical American taxpayers don’t have the option to hide money abroad, but the ultra-rich and massive corporations certainly do. This hearing was a wake-up call: We need a better handle on the problem of international tax cheats, and we need a stronger IRS to go after them.”
Today’s hearing examined the widening tax gap, with a focus on the role of offshore tax evasion in lost revenue. Research suggests the Treasury may lose anywhere from $40 billion to $123 billion annually from offshore tax evasion. One study estimates the highest-earning 1 percent of taxpayers hide 20 percent of their income, accounting for 36 percent of unpaid taxes.
President Biden and Chairman Whitehouse have both called for increased funding and modernization at the IRS to help recoup lost U.S. revenue from the ultra-rich and corporations. Over the last decade, Republican cuts to the IRS budget have led to audits of millionaires and billionaires dropping over 72 percent, and audits of the largest corporations – those with $20 billion in assets – declining by half. Witnesses at the hearing echoed Whitehouse and Biden’s sentiment. In testimony submitted to the subcommittee today, the former National Taxpayer Advocate said the IRS must see “transformational change” and undergo a “massive redesign” of its systems to carry out its mission of fairly enforcing U.S. tax law.
Watch the full hearing here.
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