The U.S. may be losing more than $300 billion a year in tax revenue to fraud every year, the Government Accountability Office estimated in a
The federal watchdog agency's projections are based on data from 2018 through 2024 — before President Donald Trump began his second term and his administration made cuts to Internal Revenue Service staff. The period also included the Covid-19 pandemic, an era in which there were numerous high-profile frauds identified targeting the government.
Republicans have made targeting "waste, fraud and abuse" the centerpiece of their plans to lower the debt, now roughly $40 trillion, but their efforts have focused on reducing government spending rather than tax evasion. Meanwhile, the party has stripped away billions in funding for the Internal Revenue Service that Democrats allocated during the Biden administration to improve tax compliance.
Last year's sweeping tax law cut more than $1 trillion from social programs, much of which Republicans justified citing a need to reduce "waste, fraud and abuse" in Medicaid and food assistance.
The GAO estimates on tax fraud, which the agency said was its first effort to calculate such losses, projects fraud lowered revenue by $116 billion to $304 billion annually, approximately 2% to 6% of tax owed.
IRS chief executive officer Frank Bisignano disputed some of the GAO's findings in a letter included in the report, saying the watchdog agency applied too broad a definition of fraud that could be explained by other common noncompliance issues.
The GAO did not draw a link between IRS funding and the agency's ability to detect and fight fraud, instead recommending the tax collector establish an anti-fraud strategy and create an entity within the agency to coordinate efforts.
But Representative Richard Neal, top Democrat on the House Ways and Means Committee, said Republican cuts to IRS staff have made matters worse.
"Democrats were right to make overdue investments into IRS staffing and enforcement against wealthy tax cheats," Neal said in a statement. "Trump's deliberate sabotage of the IRS is making this problem worse, sending audits plunging and opening the door for more fraud. While his billionaire friends continue taking advantage of the tax code, the American people are getting ripped off by a system that's rigged against them."
Democrats in 2022 allocated roughly $79 billion in spending to the IRS over a decade with much of it earmarked to boost tax enforcement. The Congressional Budget Office estimated the increased funding would generate $204 billion in additional revenue over the same period.
While the IRS launched several initiatives aimed at closing the tax gap, including targeting wealthy taxpayers and partnerships, during that period, Republicans clawed back nearly all the $45 billion provided for enforcement. The agency has not stood up similarly targeted compliance initiatives during the Trump administration. Bisignano has publicly emphasized relying on better data and technology to identify tax cheats and narrow the tax gap.
William McBride, chief economist for the right-leaning Tax Foundation, said more funding for the IRS in theory could boost revenue collections, but it would depend heavily on how well the agency implemented the funds.
"The IRS does not have a great track record of reforming itself," he said, noting the challenges the agency has faced updating its IT systems. But in general "waste, fraud and abuse" across the government, whether in spending or revenue collections, only account for a small portion of the annual deficit, which sits around $2 trillion, he said.
"Even if we totally eliminate fraud, then you see much larger factors are in play, particularly the mismatch between program spending and revenues," he said.
The GAO based its estimates of tax fraud losses on known and suspected instances of tax fraud during the period, tax gap data from the IRS, research on the shadow economy and fraud estimates from other countries.
