Lawmakers seek ways to erase huge 'tax gap'
By Albert B. Crenshaw
Washington Post
WASHINGTON — To Americans, taxes are a lot like speed limits: necessary for the public good, but when it comes to us personally, well, um, do you see a cop around?
The difference between what Americans owe in federal taxes every year and the actual amount the government collects is known as the "tax gap."
An enduring feature of the economic landscape is the "tax gap," the difference between the amount of money the government collects every year and the amount it would get if people paid everything they owe.
Getting around the law
Nobody knows how big this gap is, though one recent estimate put it at more than $300 billion annually.
Congress is becoming increasingly worried about the gap, both for the principled reason that failure to enforce laws undermines people's respect for them, and for the less lofty reason that, having cut taxes more than perhaps was wise, lawmakers are hungry for revenue.
Last year, Finance Committee Chairman Charles E. Grassley, R-Iowa, and ranking minority member Max Baucus, D-Mont., asked Congress' Joint Committee on Taxation to begin making periodic reports to Congress on ways to close the tax gap. The first report came in last week, and for Americans who pay what they owe, it was a disappointment.
Although the report did suggest several modest changes that would improve enforcement, many of its proposals would simply make compliant taxpayers pay more.
The overriding reason for the tax gap is that the IRS has neither the resources nor the legal underpinning it needs to enforce the law.
So one thing the joint taxation committee might have recommended was giving the IRS the money to hire more auditors and investigators — at least to the point that the odds of being audited might increase enough to be a credible threat.
Failing that, it might have made tougher recommendations about records of payments. So-called third-party reporting — the W-2s and 1099s that taxpayers and the IRS get from employers, banks, brokerages and others — has been effective in making taxpayers include that kind of income on their returns.
But when self-employed people and small businesses get paid, their clients or customers don't have to tell the IRS. The IRS has long known that a lot of this income doesn't find its way onto the returns of the recipients, and it's very difficult for the agency to track down.
