Worried About the Tax Gap? Here’s What Corporations Are Getting Away With

September 27, 2019

Why This Matters is a series from Roosevelt staff connecting our individual work—from papers to reports and everything in between—to our broader vision of creating a better, more equitable economic and political system. This series will give readers the top takeaways from our latest writing and thinking, with a focus on why they matter as we redefine the rules that guide our social and economic realities.

On Thursday, the Internal Revenue Service (IRS) released new estimates of the US “tax gap,” which measures the difference between the taxes people, corporations, and other entities legally owe and what is actually collected. The tax gap totals nearly $8 trillion over the past decade, according to the chief mathematician (#MathIsReal) for the Senate Budget Committee.

That’s a big number, but there are a few key points missing from news coverage and Twitter debates.

The tax gap misses what corporations and the wealthy few *should* owe.

We shouldn’t ignore the tax gap, but we should also be talking about the ways that we allow corporations and the richest among us to rob our economy blind—in many ways, legally. While most workers are living paycheck to paycheck, tech giants and megacorporations worth billions pay next to nothing in federal taxes. In April, an Amazon spokesperson said, “Amazon pays all the taxes we are required to pay in the US.”

And that’s the point: What corporations are required to pay is too low because the rules (maintained by corporate lobbyists) are set up this way. But by reducing the rewards for economically unproductive or even destructive behavior, progressive tax policy—higher corporate tax rates, a wealth tax, and more—can rectify outsized corporate power and revive our economy.

Let’s talk less about the tax gap and more about extractive corporate behavior.

Progressives have been losing the tax debate for decades, especially when it comes to who’s paying their fair share. The fact is that the rules of the American tax code are rigged in favor of corporations, CEOs, and shareholders, who—rolling in record-high corporate profits—have a lot more income and wealth but are paying less. And the 2017 Trump tax law actually encourages rich people to game the system by, for example, offshoring profits overseas, utilizing pass-through deductions, and pushing down workers’ wages.

Enforcement matters.

The federal tax code is a key driver of economic policymaking, but even good rules remain inadequate unless we revive tax enforcement. “Reversing the evisceration of the IRS is critical to reducing the concentration of wealth and power at the top,” write my colleagues in Roosevelt’s New Rules report. As they show, progressive reform efforts would include renewed funding and enhanced oversight capabilities.

Notably, equipping the IRS to enforce its tax rules is as much about combating corruption as it is about fixing our economy. “While viewed as distinct crimes, tax crime and corruption are often intrinsically linked,” per a 2018 report from the Organisation for Economic Co-operation and Development (OECD) and the World Bank. Corporations are using their economic might to hijack our democracy, so taking back political power requires taking back the economy—which progressive tax policy aims to do.

None of this is inevitable.

From IRS underenforcement to an unequal economic playing field that allows corporations to pay lower tax rates than most people, today’s economy is the result of policy choices. If you’re worried about the tax gap, then you should also be worried about what’s lost to a lax, inequitable, and unjust tax code.