[Congressional Record (Bound Edition), Volume 153 (2007), Part 5]
[Senate]
[Pages 6231-6232]
[From the U.S. 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 
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

[[Page 6232]]

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 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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