October 21, 2023
Turns out Americans just didn’t pay $688 billion in taxes.
The IRS says that is the largest shortfall they’ve ever seen.
I’m going to tell you what the IRS is doing about it and what it means for you in a second, but first I want to thank my TikTok subscribers for voting for this story as the bonus this week. If you want to vote too make sure you subscribe to my page during my next live event or you can follow these steps and subscribe right now.
Ok so first – this $688 billion of missing tax money was from tax year 2021.
The official term for this is a “tax gap.” I’ve talked about the tax gaps on this channel before. They definitely contribute to our national deficit every year. A deficit is when government spending – exceeds the amount of money coming in. Our tax money is considered revenue – money coming in. So when the government expects x amount of money in tax revenue and budgets for that amount, but in reality if the government is $688 billion short – it’s a problem. That shortfall is added to the deficit for that year. And all the deficits combined make up our national debt … which as you know as of today is $33.6 trillion. Makes sense?
So back to this enormous tax gap from 2021 and how it happened.
The IRS says majority of it – $542 billion was from people underreporting their income. The remainder was from people who didn’t file a tax return even though they were required to and people who just didn’t pay their bills. But the question is – what happened in 2021 that caused this huge tax gap? The IRS says economic growth. More people quit their W2 income corporate job where your taxes are usually automatically withheld, and moved to the gig economy or started their own business where it’s up to you to report your income – and generally the IRS sees less compliance with that.
On the positive side – in 2021 the IRS says 85% of taxes were paid voluntarily, accurately and on time. But its that other 15% that’s causing the massive tax gap.
So what is the IRS going to do? They are fully expecting late payments from 2021 to still come in and they are going to go after those people who are either not filing when they should, under reporting their income or underpaying their taxes. The IRS believes those efforts will probably bring in an additional $63 billion. So that’s a dent in the huge tax gap.
But the big question is – are they going to *increase audits on you and me the everyday taxpayer to try and close this tax gap. The simple answer is no. But the more complicated answer is – the number of audits for everyday taxpayers like you and me has always been higher than the audit percentage of wealthy people. Why? Because it’s easier and cheaper to come after us. I actually told you in this video last month that some of the biggest contributors to this tax gap are millionaires and corporations that hide assets and have their accountants get creative with the numbers. And going after them to get the tax money the government’s owed is just harder it takes more money, more time and more resources. And in the past, when congress kept gutting the IRS’s budget – and they didn’t have the money, time and resources to go after the wealthy and corporations – you take a guess at who they came after instead. I’ll wait. If you guessed us – the everyday taxpayer – you’re right.
So according to the IRS the audit level for everyday taxpayers is going to be similar to what it’s always been which is higher than wealthy people and corporations. But I also told you in that same video – the IRS is already using some of that 80 billion dollars over 10 years congress gave them in the inflation reduction act to actively go after not only 1600 millionaires who owe more than $250,000 in back taxes and corporations with more than $10 billion in assets. They are also going to step up enforcement for people with large amounts of digital assets who aren’t paying taxes, people who are not paying taxes on foreign bank accounts and construction contractors who are using shell companies to hide income.
Read more from the IRS here.
