[Congressional Record (Bound Edition), Volume 151 (2005), Part 5]
[Senate]
[Page 6661]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      PROTECTING HONEST TAXPAYERS

  Mr. LEVIN. Mr. President, today when so many Americans have to dig 
deep to pay the taxes owed to Uncle Sam, it is particularly appropriate 
that we focus on the hundreds of billions of dollars the U.S. Treasury 
is shortchanged each year by those who abuse the tax system. Because 
it's not just the Treasury that is shortchanged; it's honest taxpayers 
throughout this country who end up picking up the tab.
  Tax cheats are an insult to the men and women who serve in our 
military, the children who attend our schools, and the millions who 
rely on Social Security. Tax cheats make it harder to maintain our 
highways, protect our borders, advance medical research, and inspect 
our food. Not only do they drain money from the Treasury, they help 
deepen the deficit ditch that threatens the economic well-being of our 
children and grandchildren. They also shift a huge burden onto the 
backs of the honest taxpayers in this country.
  It is also particularly appropriate to focus on the need to crack 
down on tax cheats during this time of year when Congressional 
appropriators decide how to direct the Nation's resources. Just last 
month, the IRS updated its estimate of the Nation's ``tax gap''--the 
difference between the amount of taxes owed by taxpayers and the amount 
collected. The total tax gap in 2001 is now estimated to have been 
between $312 billion and $353 billion, and some experts believe it's 
even higher. $350 billion is more than the government spent on all of 
Medicare last year. It is three-quarters of the size of the Federal 
deficit.
  In fact, the tax gap is so huge that each individual U.S. taxpayer is 
now forced to pay more than $2,000 in taxes annually to make up for the 
taxpayers cheating Uncle Sam. The plain truth is that tax evaders are 
hurting honest Americans--not only by shrinking available resources for 
essential government services, but also by literally sticking honest 
Americans with the tax bill they've dodged.
  One of the greatest dodges is abusive tax shelters. For more than 2 
years, as ranking member of the U.S. Permanent Subcommittee on 
Investigations, I've been investigating the abusive tax shelters being 
developed and sold by professional firms such as accounting firms, law 
firms and banks. Our investigation found tax shelter promoters 
knowingly selling dubious tax shelters to hundreds of U.S. taxpayers, 
in part, because they knew the IRS lacked the resources to stop them.
  One of the tax shelters examined by the subcommittee, called 
``BLIPS,'' was sold to people facing large tax bills by accounting 
giant KPMG. The IRS is now tracking down the hundreds of individuals 
who bought BLIPS or a similar tax dodge. This abusive tax shelter was 
included in the $3.2 billion settlement announced by the IRS just last 
month. This successful settlement shows how huge the tax shelter 
problem is, and how much can be done when the IRS enforces the law. It 
also shows how critical it is for Congress to provide the IRS with 
adequate enforcement dollars to crack down on abusive tax shelters, the 
promoters who push them, and the taxpayers who evade their tax 
obligations.
  The IRS also needs significant resources to track tax dodgers who 
hide their income in tax havens. An estimated 1 to 2 million 
individuals dodge U.S. taxes by depositing funds in offshore bank 
accounts in tax havens with secrecy laws that impede IRS review. A 
recent study found that, in 2003, U.S. multinational corporations 
shifted $75 billion in domestic profits to tax havens, leading to an 
estimated tax revenue loss of $10 to $20 billion. In addition, the 
Government Accountability Office has found that 59 of the top 100 
Federal contractors owned tax haven subsidiaries, raising tax questions 
that the IRS simply doesn't have the resources to unravel. U.S. tax 
dollars hidden in a tax haven leaves more honest taxpayers to make up 
the difference.
  Despite these and other growing tax shelter and tax haven abuses, the 
resources made available to the IRS for tax enforcement have been 
reduced over the past decade. Since fiscal year 1996, for example, the 
number of IRS enforcement personnel has declined by 20 percent. The IRS 
audit rate for businesses has dropped to just two audits for every 
1,000 businesses in 2003, a decline of 62 percent in 6 years. In 
addition to fewer audits, there have been fewer penalties, fewer tax 
evasion prosecutions, and virtually no effort to prosecute corporate 
tax crimes. Corporations used to pay 35 percent of our nation's tax 
bill, but now they pay less than 10 percent. In a 2004 study that 
Senator Dorgan and I requested, the Government Accountability Office 
found that 94 percent of corporations who filed income tax returns with 
the IRS from 1996 to 2000 paid taxes of less than 5 percent of their 
income, and 60 percent didn't pay any Federal corporate income tax at 
all.
  Last year, the IRS obtained sufficient funds for a slight increase in 
its enforcement efforts. The result was a $43.1 billion increase in 
enforcement revenue a jump of 15 percent over the previous year. The 
lesson here, which is consistent with years of data, is that a 
relatively small increase in tax enforcement resources pays for itself 
many times over by increasing the amount of revenue collected. In fact, 
for every dollar invested in IRS' budget, the service yields more than 
$4 dollars in enforcement revenue. Beyond the additional revenues 
collected, increased IRS enforcement deters those who might otherwise 
have dodged their tax obligations and reassures honest taxpayers that 
compliance with the law is not a chump's game. I can't think of many 
better investments to build respect for the law and respect for the 
honest Americans who play by the rules and meet their tax obligations.
  President Bush has apparently come around to a similar conclusion. In 
a budget otherwise full of cutbacks, President Bush has advocated 
allocating $6.9 billion to tax enforcement efforts in FY 2006, with an 
emphasis on high-income individuals and corporations. This reflects an 
increase of nearly 8 percent over last year's budget. Congress should 
support this request and provide the funds needed to stop tax evasion 
and ensure tax fairness. Otherwise honest taxpayers will continue to 
shoulder more and more of the tax burden left by abusive tax shelters 
and tax haven gamesmanship. It is time to take action against the tax 
cheats who not only undermine the integrity of the Federal tax system, 
but also hike the tax bills for honest taxpayers.

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