Working Paper: NBER ID: w27571
Authors: Natasha Sarin; Lawrence H. Summers
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.
Keywords: No keywords provided
JEL Codes: H0; H2; H22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| IRS funding (H26) | tax compliance rates (H26) |
| IRS funding (H26) | tax revenue (H27) |
| increased enforcement (K42) | tax compliance rates (H26) |
| increased enforcement (K42) | tax revenue (H27) |
| IRS funding (H26) | increased enforcement (K42) |
| deterrence (K42) | tax compliance rates (H26) |
| IRS funding (H26) | deterrence (K42) |