[Congressional Record Volume 153, Number 43 (Tuesday, March 13, 2007)]
[Senate]
[Pages S3058-S3060]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
TAX GAP: BLUE SMOKE
Mr. GRASSLEY. Mr. President, I wish to finish the discussion I
started earlier today about the tax gap and efforts to close it. As I
said this morning, the tax gap is the difference between what is paid
in taxes and what is actually owed. While more reliable and timely data
on the tax gap is greatly needed, the tax gap was thought to be $345
billion for the tax year 2001, which seemed to be the year that the IRS
had the latest information where they could put together something that
was fairly solid for that year.
I also pointed out this morning that many of my colleagues in the
Senate see the tax gap as a sort of magical tonic that can be used to
cure all sorts of ailments. Some people see $345 billion in AMT relief
or health care spending or national debt reduction without thinking
about what would be involved in actually collecting the money. So I am
raising the question: Do people think through whether every dollar will
be brought into the Federal Treasury?
The IRS is already making some progress in closing the tax gap. This
morning I mentioned the Internal Revenue Service told the Budget
Committee it could reduce the tax gap by nearly $70 billion, of that
$345 billion, in the year 2007.
So where does that leave us? Can we do more in enforcement? The
administration has proposed an increase in funding for the Internal
Revenue Service. That increase looks toward the tax gap with funds
directed toward increased data matching, improved research, as well as
more auditors--auditors to make sure that more money comes in. I
suggest my colleagues might also want to make certain that if we
consider adding more Internal Revenue Service employees, we have
greater confidence that the Internal Revenue Service is utilizing
current resources effectively. In other words, before we hire more
people, we ought to make sure the existing employees at the Internal
Revenue Service are being used in the most efficient way to bring in
the most money possible.
That doesn't preclude more money, but that is a necessary first step
before we automatically think of more money and more employees.
For instance, the IRS has hundreds of employees, according to a
Treasury inspector general for tax administration report, that do part-
or full-time union work. This is thousands and thousands of work hours
that could be spent going after the tax gap. What could we gain if we
directed all those union hours to actually working on the tax gap
before we appropriate more money to hire more employees?
So we have proposals then for increased enforcement. Let me remind my
colleagues, though, that the Joint Committee on Taxation--that is a
congressional committee that specializes in watching the Tax Code and
making estimates and studying all ways to make the Tax Code more
efficient and bring in more money--that committee will not give us a
score for additional dollars based on increased enforcement. So we can
talk all we want about hiring more people to bring in more revenue, but
until that revenue is in the bank, the Joint Committee on Taxation
isn't going to give us any credit for it.
As we are looking at budget debates over this week and next week,
keep that in mind. That isn't going to get Senators anywhere in terms
of reducing projected deficits or paying for tax cuts or bringing in
more money to spend someplace else.
It is important to emphasize the Commissioner of the Internal Revenue
[[Page S3059]]
Service made it clear to the Budget Committee a few days ago at a
hearing that we cannot audit our way out of the tax gap. The
Commissioner also warned about increasing the IRS budget too quickly if
we decide to go the route of hiring more people by giving more money
because he said a big increase in staffing would harm taxpayers' rights
if the IRS was not able to grow in a managed way to control the
outcome.
We can look at what we can possibly do legislatively beyond greater
enforcement. The Democratic leadership hasn't proposed anything new,
but the administration has put forward some proposals in the budget--in
its own budget, meaning the budget of the executive branch. Many of the
administration's proposals deal with information reporting. Information
reporting is an important way to improve tax compliance. This is very
clear from all the work that has been done so far on the tax gap.
However, information reporting places additional burdens on
taxpayers, and it is very frustrating that we often find the Internal
Revenue Service is not doing enough to match or review the documents
taxpayers are already providing the IRS as a paper trail to make sure
all taxes are paid. Needless to say, this greatly limits the benefit
information reporting provides.
Setting these concerns aside, the administration in their budget has
proposed, one, information reporting on payment to corporations; two,
basis reporting on securities sales; three, broker reporting; four,
reporting of merchant payment card reimbursement; five, increase
information return penalties; six, taxpayer identification number
verification for independent contractors; and seven, information
reporting on certain Government payments.
The administration has proposed other proposals, including increased
penalties, expanded IRS access to information, and required electronic
filing as some of the other new proposals.
This is a very comprehensive list of proposals coming from the
administration. Is it everything? No, but it seems to me this is a
serious start and shows that people within Treasury, within the Office
of Management and Budget, and maybe even within the White House, are
very concerned about closing the tax gap.
If Senators who have attacked the Secretary of Treasury and the
Internal Revenue Service believe more can be done, I suggest they
should come forward with their own proposals and add to the multitude I
read coming from the executive branch of Government.
I think Senators will find that while it is easy to complain about
what is coming out of the Treasury's kitchen, it is a lot harder to get
in there and do it themselves. I think Senators need to be careful--
very careful--at putting out pie-in-the-sky numbers for what can be
achieved by reducing the tax gap without at the same time putting
forward their own detailed, concrete, Joint Tax Committee-scored
proposals that show how it can be done.
That brings me to a chart. This chart shows there is a lot of smoke
and mirrors when it comes to the tax gap, in other words, all the
people who are saying they are going to use the tax gap to reduce the
deficit, to fund tax cuts or even to take the money and spend it on
some new program or increase spending on existing programs. There are a
lot of ideas out there.
What I want this chart to demonstrate to us is that there is a lot of
smoke and mirrors when it comes to the tax gap. We can't use smoke and
mirrors to pay for tax cuts or to decrease the deficit; we have to have
proposals that are in detail, black and white, and are scored by the
Joint Committee on Taxation, our experts who are on top of the Tax Code
and how much money will come in or how much money we lose if we cut
taxes.
Tax gap proposals shouldn't be used for spending. The tax gap is
appropriately viewed as unfairly placing a heavier burden on compliant
taxpayers, 85 percent of the people who pay what they owe and file
accordingly.
If we enact tax-gap closers, they should be used to reduce taxes or
reduce the deficit, not to increase spending.
Let me conclude my discussion of the tax gap by saying you can have a
blue Moon, you can have blue cheese, you can have blue-suede shoes, but
when it comes to balancing the budget, you can't do it with blue smoke
and mirrors. That, unfortunately, is what so much of the tax gap is
right now: blue smoke.
I strongly encourage the Budget Committee chairman and other Senators
not to use blue smoke during the upcoming budget resolution debates.
That is going to happen Wednesday and Thursday in the Budget Committee
this week. It is going to happen all next week on the floor of the
Senate.
Now I will review some of the issues we must consider as the Senate
works on its budget resolution. In an earlier visit with my colleagues
in the Senate, I discussed the importance of preventing a tax hike on
the American people. Anyone who considers themselves a deficit hawk
needs to do more than raise taxes. So I challenge the new Democratic
majority to also examine the spending side of the ledger; that is, if
they are truly serious about deficit reduction.
In another visit with my colleagues from the floor of the Senate, I
highlighted a study prepared by Goldman Sachs. That study shows that
the likely result of letting tax relief expire could lead to a
recession. Since tax relief was enacted, Federal revenues have
increased, employment has increased, household wealth has increased--in
fact, household wealth has increased to the highest level it has ever
been in the history of our country--and the S&P 500 index has
consistently moved upward. Again, a failure to extend tax relief or
make it permanent puts all this at risk, and at risk for nothing.
Anyone serious about deficit reduction needs to also look, then, at
the spending side of the ledger. In a third visit that I had with my
colleagues from the Senate floor, I pointed out that Democratic revenue
raisers did not come close to covering new spending contained in
Democratic amendments when we had the budget up exactly 12 months ago
this month. In many cases, I showed the same offset was used in
multiple amendments to pay for multiple projects, just like every
dollar coming into the Federal Treasury could be spent two, three, four
times, and somehow just multiply and, like blue smoke, solve all of our
problems.
If the Democratic leadership is serious about pay-go, and that is
short for pay as you go, and if they are serious about deficit
reduction, they need to be realistic about where the money is going to
come from to cover any new spending proposals. The budget plan
advocated by the other side last year would have either increased the
deficit or gutted tax relief that was passed in 2001 and 2003,
including items such as the alternative minimum tax fix that we did,
and all of these things the other side of the aisle claims to support
and yet have proposals that would gut them or increase the deficit.
I want to state my intention to fully cooperate with my colleagues of
both parties to produce a budget that preserves our growing economy
while addressing the needs of our government. I am particularly looking
forward to exploring ways to use the Tax Code to help more Americans
acquire health insurance. I am also looking forward to using the budget
resolution to ensure, on a revenue-neutral basis, that we continue to
pursue tax simplification and tax reform. In order to produce the best
possible budget, we must be careful not to endanger our growing
economy. We must be willing to examine spending. We must not just focus
on revenues, and in the whole process, we have to be intellectually
honest about how far we can push revenue raisers and other offsets. In
other words, avoid the smoke and mirrors.
Mr. President, I yield the floor.
Mr. SESSIONS. Mr. President, I ask unanimous consent that I be
allowed to speak in morning business for 10 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. SESSIONS. Mr. President, I thank Senator Grassley for his remarks
and would share his concerns that we have to be intellectually honest
about the numbers with which we are dealing. We are not going to be
able to have the kind of revenue collection enhancement that some have
suggested is possible. I wish it were so. I pay my taxes. Most people
pay their taxes. It is
[[Page S3060]]
not right for people to cheat on their taxes. It cheats all of us when
that occurs. From experience, we know that we can't get that big of an
enhancement, at least that is what the experts tell us. We cannot get
the enhancement from collections that some have suggested that we can.
They will use monies projected to be collected--that is, they will say
we are going to collect a lot more to justify spending--and then when
the revenue doesn't come in, all we have done is increase the debt.
So that is a problem and I am pleased Senator Grassley has raised it
and we might as well deal with it openly.
(The remarks of Mr. Sessions pertaining to the introduction of S. 863
are located in today's Record under ``Statements on Introduced Bills
and Joint Resolutions.'')
Mr. SESSIONS. I yield the floor and suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. REID. I ask unanimous consent that the order for the quorum call
be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
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