[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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