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First, Go After The Tax Cheats

By Albert B. Crenshaw
Sunday, January 30, 2005; Page F01

To Americans, taxes are a lot like speed limits: necessary in principle for the public good, but when it comes to us personally, well, um, do you see a cop around?

Thus it is that 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.

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Nobody knows how big this gap is. After all, the perfect crime is one that no one knows took place. That applies to tax evasion as much as to murder. And tax evasion is a lot easier to hide.

One recent estimate put the gap at more than $300 billion annually, but no one has any confidence in its accuracy. The head of the Internal Revenue Service, asked last year for his "best guess" as to the size of the gap, told the Senate Finance Committee he didn't have one.

Congress is becoming increasingly worried about the gap, both for the good and 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 really hungry for revenue.

Last year, Finance Committee Chairman Charles E. Grassley (R-Iowa) and ranking minority member Max Baucus (D-Mont.) asked Congress's Joint Committee on Taxation to begin making periodic reports to Congress on ways to close the tax gap. The first of those reports came in last week, and for Americans who pay what they owe and would like to see others forced to do so before lawmakers start repealing legal breaks, it was a disappointment.

While the report did suggest a number of modest changes that would improve enforcement, many of its proposals would simply make compliant taxpayers pay more.

Now, it can certainly be argued that many of the legal ways taxpayers are allowed to reduce what they owe are bad policy, but they are not what cause the tax gap. The tax gap comes from taxpayers who don't pay what they do owe under the law, loopholes and all.

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.

The agency's budget hasn't come close to keeping up with the growth of the economy, and that's not even taking into account the increased complexity of both economic life in this country and the tax law itself.


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