Bayh Pushes to Close Tax Gap

Bayh Pushes to Close Tax Gap

Senator says closing tax gap is first step to reducing deficit

Washington, D.C. -- In a letter to the Senate Appropriations Committee, U.S. Senator Evan Bayh is urging an increase in funding for the Internal Revenue Service's (IRS) tax enforcement activities to help crack down on people cheating on their taxes and close the tax gap, the difference between the amount that is legally owed by taxpayers and the amount actually paid by taxpayers. The IRS estimated that the tax gap was $345 billion in 2001, and a recent report by the Treasury Inspector General concluded that the actual amount of the tax gap could be much larger. The National Taxpayer Advocate, Nina Olson, has noted that a tax gap of this size amounts to a surtax of $2,000 per year for every taxpayer to subsidize non-compliance.

"While many people disagree about what the appropriate tax levels should be, we can all agree that everyone should follow the law and pay what they owe," Senator Bayh said. "By giving the IRS the tools to catch tax cheaters and enforce the tax code, we can help the government collect billions of additional legally-owed tax dollars every year, helping rein in the soaring deficit that currently threatens our economic security."

In a bi-partisan letter with Senators Carper, Smith, and Obama, Senator Bayh called for a $500 million increase in funding for the IRS's tax enforcement activities. In recent years, the IRS has stepped-up its enforcement efforts and achieved notable success. This year, the IRS expects to collect $48.1 billion in enforcement revenue, a 42 percent increase from the amount collected five years ago.

With additional tools and a larger enforcement budget, the IRS would be able to catch more people cheating the tax code, by increasing the number of face-to-face audits and improving its efforts to identify and prosecute illegal tax schemes, ending the misuse of devices such as trusts and offshore accounts, and closing down abusive corporate tax shelters. Earlier this year, IRS Commissioner Mark Everson told the Senate Budget Committee that with the right enforcement tools, the IRS could narrow the annual tax gap by as much as $100 billion without unduly burdening taxpayers.

Senator Bayh has been a leader in the effort to close the tax gap. Last month, he introduced legislation to help close the capital gains portion of the tax gap, by making the tax code fairer and simpler for American taxpayers. Senator Bayh's legislation, the Simplification Through Additional Reporting Tax (START) Act of 2006, will require brokerage houses and mutual fund companies to track and report to taxpayers and the IRS investment information related to capital gains taxes, making it easier for taxpayers to file their tax returns and helping the IRS crack down on would-be cheaters.

http://bayh.senate.gov/~bayh/releases/2006/04/03may06pr.htm