Is the U.S. Tax Gap as Big as Italy's?

Is the U.S. Tax Gap as Big as Italy's?

by Jeremy Scott

... [N]numbers from a New York Times article about Italian tax evasion suggest that the United States isn't doing much better than one of Europe's most notoriously inefficient tax collectors.

A January New York Times story on Italy's quest to crack down on tax cheats pointed out that up to 18 percent of the Italian economy may be underground. If the Italian government could collect taxes on that portion of national income, it would raise as much as $162 billion. Italy's total tax revenues in 2010 were about $550 billion (€403 billion). That means that Italy's tax gap is about 29.5 percent of its total revenues. Although that sounds significantly worse than our tax gap, it's probably misleading. The U.S. federal government only taxes about 18.5 percent of GDP (total taxes at all levels come to about 24 percent, according to the OECD). Italian taxes at all levels average around 42 percent of GDP. So one possible reason that the Italian tax gap looks worse is that Italians are evading much higher rates. If the United States taxed 40 percent of GDP, the $2 trillion going untaxed would cost all levels of government $800 billion!

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