[Congressional Record Volume 150, Number 49 (Thursday, April 8, 2004)]
[Senate]
[Pages S4010-S4011]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE IRS TAX GAP
Mr. BAUCUS. Mr. President, in the next week, millions of Americans
will do their duty, obey the law, and complete their income tax
returns. Although this is clearly one of our citizens' least favorite
annual rituals, most taxpayers will do what's right and provide their
share of funding to keep our national government running.
But while these honest Americans are doing their part, a number of
others are trying to get by without doing theirs. And that's what I
would like to talk about this afternoon.
Some call it the ``tax gap''--the difference between the amount of
taxes that taxpayers actually owe to the Federal Government and the
amount of taxes that taxpayers actually pay to the Federal Government.
This is not about raising taxes. This is about enforcing the tax laws
on the books. This is about collecting the taxes that are owed to the
Treasury under the existing Tax Code.
While most Americans, with quiet patriotism, file their tax returns
and pay their taxes on time, too many do not. There are a number of
ways that these folks try to skirt the law: Some don't file their
returns. Others understate their incomes. Still others take excessive
or illegal deductions. And there are those who claim fictitious
refunds.
Unfortunately, there is a growing perception among honest taxpayers
that a large number of people are cheating the tax collector--and
getting away with it. The IRS Oversight Board Annual Survey on Taxpayer
Attitudes reported that the proportion of Americans who ``completely
agree' that it is all Americans' civic duty to pay their fair share of
taxes has steadily declined.
In 1999, 81 percent of Americans agreed that it's their duty to pay
taxes. In 2002, only 72 agreed with that statement. And last year, that
group fell to just 68 percent of the population.
This trend is very distributing, but it is also very clear. More and
more people believe that cheating is acceptable.
As if this public attitude were not disturbing enough, the growing
lack of taxpayer compliance jeopardizes the voluntary tax system on
which our government depends. American taxpayers who voluntarily pay
their fair share of the country's revenue will not support a tax system
that tolerates widespread cheating.
Taxpayers expect their Government to ensure that all pay their fair
share. Not one dime more, but not one dime less. The millions of honest
taxpayers deserve no less.
The National Taxpayer Advocate estimated that the tax gap for 2001
was $311 billion. But this is based on 16-year-old data from 1988.
There is every likelihood that the tax gap is significantly higher. It
certainly isn't less.
For the taxable years 2001 to 2003, the cumulative tax gap exceeded a
trillion dollars. In other words, if all individuals and corporations
fully paid all of their taxes due for the past 3 years, the IRS could
collect an additional $1 trillion.
This huge level of unpaid taxes is harmful to law-abiding Americans
and to the economy as a whole. Just as retail stores raise prices for
honest shoppers after they lose merchandise due to shoplifting, honest
taxpayers pay more to cover those who aren't paying their share.
In terms of the economy, each dollar in unpaid taxes increases the
deficit by a dollar. The administration predicts that the deficit will
be cut in half in the next 5 years. But since the administration took
office, the cumulative IRS tax gap has exceeded $1 trillion. Let me say
that again: $1 trillion. This is enough to help shore up Social
Security, pay for the war in Iraq, ensure that no child is left behind,
fix the highways and extend unemployment insurance.
Currently, the overall taxpayer noncompliance rate is 15 percent and
growing. The plain fact is that voluntary compliance has been and
remains the backbone of our tax system. Our primary mission must be to
maintain and enhance the health of that system by encouraging and
facilitating voluntary compliance with our tax laws. A 1-percent point
swing in voluntary compliance will increase, or decrease, revenues each
year by more than $20 billion.
Our Federal budget has gone from one of the greatest surpluses in its
history to the highest deficit ever known--$478 billion--close to half
a trillion dollars in the current fiscal year.
Now more than ever we need a plan of action to close the IRS tax gap.
I propose the following:
First, let's make it easier for people to pay their taxes. Our
Federal Tax Code and accompanying regulations are more than 54,000
pages long. They are too complex, confusing, and costly to comply with.
In addition to making the code simpler for individual taxpayers,
simplification would reduce opportunities for dishonesty. Tax shelters
develop because sections of the lengthy code are manipulated to achieve
unwarranted tax benefits.
That is why I support a broadly based blue ribbon commission that
would recommend simplifications for our income tax system that we could
act on.
Second, we need better data on noncompliance. To fix a problem, you
have to know the facts. I support the National Research Program that
would allow us to have a more accurate estimate of the IRS tax gap and
should help IRS identify where they should target their enforcement
efforts.
Third, the IRS needs to do a better job enforcing our current tax
laws. And that may take Congress passing legislation forcing them to
take stronger action. Bills such as the good Government tax
administration bill would improve efficiency and strengthen safeguards
in IRS collection cases. And in
[[Page S4011]]
the JOBS bill--which I am optimistic we will pass in the very near
future--we have included antitax shelter legislation that will make
sure transactions are done for legitimate business reasons and not
solely for tax benefits.
We have also included provisions that would impose stiffer penalties
on any taxpayers who engage in shelter transactions. It is also time to
crack down on expatriation practices, corporate inversions, SILOs,
abuses in the charitable area, Enron-related tax shelters, and offshore
abusive tax schemes. And we should devote more resources to IRS
enforcement. Dollars spent there will bring in several times as much in
additional revenue raised.
And last, but certainly not least, we need to set a goal, a benchmark
of where we are going on tax compliance. Today, I proposed that we
reach at least a 90 percent tax compliance rate by the end of the
decade. By 2010, at least 90 percent of Americans should be filing
their taxes and paying their dues. It is not too much to ask. Now, it
will not be easy, but that does not mean that it cannot be done. I know
we can achieve it through the methods I just outlined.
With the growing deficit and the upcoming retirement of the baby boom
generation, increasing tax compliance is more important than ever. And
it is also one of the easiest ways to raise more revenue for our
Nation. We are not talking about raising taxes--we are simply asking
all Americans to pay their fair share as citizens of this great Nation.
By reaching a 90-percent compliance rate, we would raise at least $100
billion more each year. This funding would go a long way toward
strengthening Social Security or helping our classrooms or paying down
the deficit.
April 15 is just around the corner. I encourage every citizen to do
what is right, to stand up for your country and make your contribution.
Here in Congress, we will keep working to make it easier for our honest
taxpayers to comply and to make it harder for those dishonest folks to
cheat the system. Together, we will seal the tax gap and help the
economy.
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