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Baucus Loses Patience With US Government On Tax Gap

by Leroy Baker,, New York

20 April 2007

As part of a stinging rebuke of the administration's failure to take the issue of the tax gap seriously, Senate Finance Committee Chairman Max Baucus says he has lost patience with the government's continuing procrastination on the issue, and has challenged the Treasury and the Internal Revenue Service to increase voluntary tax compliance to 90% within ten years.

According to Baucus, who presided over a committee hearing on the tax gap earlier this week which featured testimony from Treasury Secretary Henry Paulson, in 2005 the rate of voluntary tax compliance was 85%, but dropped to 83.7% in 2006. He said that each percentage point drop in the rate amounts to a $25 billion increase in the annual tax gap, and 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, going on to berate serving and former senior officials for their lack of action on the issue.

"In February 2006, I asked (former Treasury) Secretary Snow for a tax gap plan within 30 days. When he left office, five months later, we still had not received one. He left behind a few proposals that would raise $3.5 billion over 10 years, barely a dent in a tax gap that will lose $3.5 trillion over 10 years."

"On June 13, 2006, I asked IRS Commissioner Everson for a 'reasonable, but aggressive' plan to reduce the tax gap. He agreed to provide a plan. But he has not delivered one. On June 27, 2006, I asked Mr. Paulson for a plan. He did not commit to provide one. On July 13, 2006, I asked (Assistant Secretary for Tax Policy) Solomon for a plan. He, too, did not commit to provide a plan."

"Only after I held up Mr. Solomon’s nomination did Treasury agree to come up with something. And what we received was an outline for a strategy. That outline was utterly inadequate. It merely rehashed ideas that were already floating around Washington. It contained no specific goals."

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).

"A few worthy ideas do not rise to the level of a plan," stated Baucus. "And a penny on every dollar of the tax gap is simply not enough. The budget says that the Treasury and the IRS, quote, 'continue to consider additional approaches to reducing the tax gap.' For two and a half months, this committee has been waiting to hear what they are."

Baucus went on to set the administration an ultimatum: "I will not wait any longer. I am going to set the goal for you, today. I am setting a goal of 90% voluntary compliance by the year 2017. That is six percentage points higher than today’s rate. This is a realistic goal. It is achievable, within 10 years. When it is reached, collections of taxes legally owed will increase by at least $150 billion each year."

Baucus called upon Paulson to reappear before the Committee on July 18, 2007 to deliver his plan, "complete with benchmarks and timetables."

"The dropping voluntary compliance rate threatens the integrity of our tax system. It undermines fairness. It weakens confidence in government. And it breeds disrespect for the law," he argued.

"This nation should commit itself to achieving the goal, before a decade is out, of having at least nine out of 10 taxpayers comply with the tax law. While we cannot guarantee that we shall achieve this goal, we can guarantee the consequences of failure to make the effort," Baucus concluded.

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