Math Versus Musk: Closing the Tax Gap

Elon Musk's Department of Government Efficiency's current goal is to cut $150 billion a year in spending from the federal government. One fundamental problem with Musk's approach is that sometimes spending a little more money saves a lot of money, or makes a lot of money. Repairing a hole in a roof in Florida before hurricane season saves money. Regularly changing the oil in your car saves money. For every dollar that the Internal Revenue Service spends auditing the top 10% of earners, it recovers $12 in taxes. A recent Stanford study found that auditing partnerships nets $20 in taxes recovered for every dollar spent by the IRS.

The largest chunk of fraud in America's federal government is the tax gap. The tax gap is the difference between how much is owed in taxes how much is paid in taxes. For 2022, the IRS estimated that the tax gap was $606 billion. That $606 billion in fraud that tax cheats get away with is equivalent to the total federal income taxes paid by the bottom 90% of earners in America.

For most Americans, like myself, every dollar in wages we earn is reported by our employers to the IRS, our taxes are withheld from our paychecks, and that money is paid to the Treasury as estimated taxes four times a year. So for most Americans, cheating is close to impossible, and our rate of compliance is 99%. But for rich individuals and corporations, our byzantine tax code gives them lots of nooks and crannies to hide their income and avoid paying the taxes they owe, so their rate of cheating can be as high as 55%.

I propose that we not only hire back all those fired workers at the IRS, but double down and spend an additional $5 billion auditing the top 10% of earners and $5 billion auditing partnerships at the IRS to reduce the tax gap by $160 billion.

If we collected 25% more of the tax gap, that would be roughly $150 billion a year, which happens to match the DOGE yearly goal. But DOGE isn't even looking at bringing in more revenue. How can DOGE, whose mission is government efficiency, ignore the biggest chunk of fraud in the federal government? DOGE has actually done the opposite. DOGE has aggressively cut workers from the IRS, targeting those employees recently hired and being trained to go after the worst of the worst of the tax cheats. The Inflation Reduction Act, which former President Joe Biden pushed through Congress, bolstered tax enforcement and modernization at the IRS, and experts being trained to audit the most complex returns were hired less than two years ago, so they were cut as part of Musk's purge of probationary federal employees. Even worse, it has been reported that Musk and President Donald Trump are working on plans to cut staffing at the IRS by half.

The Budget Lab at Yale has estimated that if 22,000 employees are cut from the IRS, the tax gap will increase by $160 billion in 2026. If DOGE cuts half of IRS employees, or 50,000, the Budget Lab at Yale estimated that the tax gap will increase by $203 billion in 2026. So just accounting for DOGE's cuts to the IRS, DOGE will likely increase the deficit, even if they hit their target of cutting $150 billion in spending.

I propose that we not only hire back all those fired workers at the IRS, but double down and spend an additional $5 billion auditing the top 10% of earners and $5 billion auditing partnerships at the IRS to reduce the tax gap by $160 billion. So the score is an estimated increase of $203 billion in fraud for DOGE, $150 billion in deficit reduction for me.