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.
Income taxation, Internal Revenue Service budget, investments in tax compliance, audit rates, overhaul of IRS technology, third-party reporting, diminishing returns, deterrence, longer-term enforcement gains, additional revenue generation, CBO underestimate, alternative estimate of compliance gains
Sarin, Natasha and Summers, Lawrence H., "Understanding the Revenue Potential of Tax Compliance Investment" (2020). Faculty Scholarship at Penn Carey Law. 2217.
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