Tax gap costing all Californians

March 13, 2012

Potential tax dollars lost to the “underground economy” deprives California’s coffers of as much as $10 billion annually, a study by the state’s Franchise Tax Board suggests.

Other tax-avoiding techniques contribute to the deficit, the study notes, such as non-filing of tax returns, misstatement of deductions and simple tax evasion.

Tax agency officials said the data was derived from Internal Revenue Service records.

The so-call “tax gap” is twice the amount Gov. Jerry Brown wants to raise through his proposed tax increase ballot attempt.

According to FTB officials, the widespread practice of avoidance costs other California residents who must shoulder a larger share of the tax load, receive fewer services and benefits, and endure larger and larger budget deficits.

The report’s authors said that dealing with the so-called ”tax gap” is important “because it causes other Californians to bear the additional load of higher taxes, less services, and bigger deficits. The Tax Gap also undermines honest taxpayers’ sense of equity in our tax system and places honest businesses at a competitive disadvantage.”