WASHINGTON, September 26 — Tax fraud may be costing the federal government more than $300 billion a year, the Government Accountability Office said Friday, in an estimate that lands as Treasury yields sit at multi-decade highs and Congress weighs what to do about both. The bottom line from the GAO: annual tax fraud losses ran between $116 billion and $304 billion each year from 2018 through 2024.
The watchdog built that range from IRS fraud cases, potential fraud inside the tax gap — the taxes owed but not paid — and tax evasion in the informal or shadow economy. The GAO was blunt that the numbers come with wide error bars.
It called the estimates inherently uncertain, but said they rest on the best evidence and analytical methods available, and that they should still be useful to lawmakers hunting for ways to cut cheating.
Two recommendations, one partial yes
The office made two specific recommendations to the IRS. First, develop and document an anti-fraud strategy. Second, designate a dedicated anti-fraud entity.
The IRS partially agreed with both, according to the GAO. IRS Chief Executive Officer Frank Bisignano disputed the report’s definition of fraud.
He said the GAO cast too wide a net, folding in taxpayer noncompliance that falls short of fraud. The GAO framed the estimate as a budgeting tool as much as an audit finding. “The estimate could help Congress and agency officials understand the potential scale and scope of tax fraud loss and decide how to allocate resources for fraud risk management,” it said.
“For example, the estimate could inform decisions about the costs and benefits of implementing new controls to prevent, detect, and respond to tax fraud.”
The backdrop: yields, debt, and a sour mood
Investors will note the timing. The yield on the 30-year Treasury bond briefly rose above 5.5% on Friday for the first time in 22 years before slipping back. The benchmark 10-year note was little changed on the day after hitting its highest rate since June 2007 on Thursday.
Driving that move: expectations that surging energy prices will feed inflation further, and that the Federal Reserve will answer with more rate hikes after raising its benchmark rate this month for the first time since 2023. Add worries about the growing U.S. debt and competition in bond issuance from the AI investment boom.
The Congressional Budget Office on Thursday published its own analysis of what higher rates do to the debt math. A 1-percentage-point increase in rates above the agency’s long-term baseline would raise primary deficits — deficits excluding interest costs — by 0.2 percentage points through fiscal year 2056, to 2.3% of GDP on average. Debt held by the public would then grow to 222% of GDP by 2056, 47 percentage points above the current baseline.
Total deficits from 2026 to 2036 would be about $1.5 trillion larger, and additional interest costs would reach $35.7 trillion through 2056, according to the Committee for a Responsible Federal Budget, which advocates for deficit reduction. The CRFB also noted the CBO analysis “assumes that the average interest rate on the federal debt is below the current 10-year Treasury yield until 2047 — so the actual fiscal situation could be even worse.” Consumers are already pricing in the pain.
The University of Michigan’s consumer sentiment index fell to 48.1 at the end of September, its second-lowest reading on record; the all-time low of 44.8 came in May, when fuel prices neared record highs during the war against Iran. Renewed hostilities in recent weeks pushed gasoline to a record high for September of $4.48 a gallon and diesel to an all-time high of $6.53 a gallon.
Inflation has run above the Federal Reserve’s 2% target for more than five years, and year-ahead inflation expectations jumped from 4.0% last month to 4.6% this month. Expectations for personal finances now and a year out fell 10%. Joanne Hsu, director of the consumer survey, said the decline was broad.
“Overall, interviews reveal broad agreement across the political spectrum that the outlook for the economy has weakened since the beginning of the year,” she said. Watch the IRS response to the two GAO recommendations, and whether a Congress staring at 222%-of-GDP debt projections finds the appetite to fund the antifraud controls the watchdog says could pay for themselves.
