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Baucus Grants Treasury More Time To Compile 'Tax Gap' Action Plan

by Mike Godfrey, Tax-News.com, Washington

23 July 2007


Senate Finance Committee Chairman Max Baucus has agreed to grant additional time for receiving the Treasury Department’s updated strategy for reducing the $345 billion annual “tax gap”.

At a Finance Committee Hearing on April 18, Baucus asked Treasury Secretary Paulson to provide the Committee with an expanded and more detailed plan by July 18 that would achieve a 90% voluntary tax compliance rate within ten years.

Treasury Secretary Henry Paulson has written to Chairman Baucus and indicated that an updated strategy for reducing the tax gap would be completed within the next few weeks. Upon receipt of the Secretary’s letter, Baucus made the following comment:

“Increasing voluntary compliance is essential to a tax system that is fair to all Americans. I am encouraged that the Treasury Department has made considerable progress toward meeting my request for a comprehensive and credible plan with specific objectives and targeted completion dates. I’d rather the Treasury Department take the time necessary to get it right than to provide the Committee with an incomplete plan. I am committed to working with the Secretary to improve tax compliance and significantly reduce the tax gap.”

Paulson told Baucus, in his letter dated July 18, that the Treasury is nearing the completion of "an updated, more detailed tax-gap strategy" and that he expects the final version to include specific objectives and targeted completion dates.

According to Baucus, in 2005 the rate of voluntary tax compliance was 85%, but dropped to 83.7% in 2006. He has suggested that each percentage point drop in the rate amounts to a $25 billion increase in the annual tax gap, and has accused the government of failing to collect $2 trillion in legally-owed taxes since 2001.

"The American people have a right to expect that their government will have a goal and a credible plan to reduce this tax gap. And it is the Treasury’s job to fix it. Yet the administration does not appear to take the job seriously," he remarked during the April hearing.

While the Treasury's 2008 Budget plan included 16 tax compliance proposals, Baucus said that these would raise just $29 billion, barely affecting the tax gap, estimated at $345 billion in 2001 (the latest years for which figures are available).


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