The biggest reason for the gap is underreporting of income. There's a high rate of compliance when it comes to income reported by third parties, such as employers reporting workers' incomes on W-2s.
But the compliance is much lower in cases when there's no third-party reporting, such as with small business owners who do mostly cash transactions. The cash economy may account for over $100 billion of the annual tax gap, according to testimony from Nina Olson, the National Taxpayer Advocate.
The IRS is already working to improve compliance.
The easiest way to "recover" that $100 billion would be to get rid of the cash economy. No more cash. Just credit. That way there would be a record of every purchase that the government had access to. Of course credit cards can be stolen so easily, and this could end up confusing the records, so it would be nice if you could attach the cards to someone in a way they couldn't be taken. Like a bar code or something. Possibly on the hand, or maybe the forehead.
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