The United States is losing approximately $1 trillion in unpaid taxes every year, Charles Rettig, the Internal Revenue Service commissioner, estimated Tuesday, arguing that the agency lacks the resources to catch tax cheats.
The so-called tax gap has surged in the past decade. The last official estimate from the IRS was that an average of $441 billion per year went unpaid from 2011 to 2013. Most of the unpaid taxes are the result of evasion by the wealthy and large corporations, Rettig said.
"We do get outgunned," Rettig said during a Senate Finance Committee hearing on the upcoming tax season.
Sen. Ron Wyden, D-Ore., chairman of the committee, called the $1 trillion tax gap a "jaw-dropping figure."
"The fact is that nurses and firefighters have to pay with every paycheck, and so many highfliers can get off," he said.
Rettig attributed the growing tax gap to the rise of the $2 trillion cryptocurrency sector, which remains lightly regulated and has been an avenue for tax avoidance. He also pointed to foreign-source income and companies' abuse of pass-through provisions in the tax code.
The size of the IRS enforcement division has declined sharply in recent years, Rettig said, with its ranks falling by 17,000 over the past decade.
The spending proposal that the Biden administration released last week asked for a 10.4% increase above current funding levels for the tax collection agency, to $13.2 billion. The additional money would go toward increased oversight of tax returns of high-income individuals and companies and to improve customer service at the IRS.
Rettig also said he expects to meet the July 1 deadline in the new pandemic relief law for starting a groundbreaking tax program aimed at reducing child poverty. That means new advance monthly payments of as much as $300 per child could begin flowing to lower-income families this summer.
Rettig said it will cost nearly $400 million and require the hiring of 300 to 500 people to get the new monthly payment system and electronic portal in place for the child tax credit. "The IRS will be working hard to deliver this program quickly and efficiently," he said. Republicans have criticized the initiative as an expansion of the welfare state that removes the incentive for parents to seek work.
The Associated Press contributed to this report.