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U.S. sees red over back taxes
By Richard Wolf, USA TODAY
WASHINGTON The Bush administration and members of Congress have
their eyes on a potential pot of money that could virtually wipe out
the government's budget deficit: unpaid taxes.
The effort to target delinquent taxpayers follows a report from the
Internal Revenue Service that roughly $345 billion, or more than 16%
of all taxes owed, initially went unpaid in 2001. The IRS eventually
collected $55 billion of that, leaving a "tax gap" of $290 billion.
Based on the 15% increase in tax revenue since then, this year's gap
could be $400 billion or more. That's more than the Congressional
Budget Office's $360 billion estimate for the 2006 budget deficit.
"It just leaps out at you as one of the most significant
opportunities we have," says Sen. Kent Conrad of North Dakota, the
top Democrat on the Senate Budget Committee. (Related story: 'Tax
gap' solutions have vocal opponents)
Taxpayers have been underpaying the government for decades. Some are
corporations or wealthy individuals who use illegal tax shelters.
Others are individuals with business income, including the self-
employed, who underreported that income by 57% in 2001, the IRS says.
Many are taxpayers just confused by the tax code.
Nina Olson, the IRS' national taxpayer advocate, says average
taxpayers pay a "surtax" of more than $2,000 a year to subsidize
those who don't pay. "When honest taxpayers feel like chumps, some of
them start fudging, too," she says.
The Bush administration and Congress agree that only a modest
increase in tax collections is possible without burdensome
requirements. That's because the biggest increase in unpaid taxes is
in the unmonitored "cash economy."
President Bush wants a 2% increase in IRS enforcement funds next
year. The IRS says every dollar spent going after tax cheaters brings
in about $4 in revenue.
Key members of Congress want to go further. Senate Budget Committee
Chairman Judd Gregg, R-N.H., has raised the possibility of doubling
the president's proposed increase. Senate Finance Committee Chairman
Chuck Grassley, R-Iowa, has proposed reining in taxpayers who
exaggerate the value of charitable deductions.
But doing all that, says IRS Commissioner Mark Everson, would net
only an additional $50 billion to $100 billion a year. Getting more,
he says, would require a government too intrusive for Americans to
stomach: "At some point, you get to a tradeoff between liberties and
closing that gap."