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White House To Announce Tax Gap Task Force

by Mike Godfrey,, Washington

26 March 2009

US President Barack Obama is set to unveil a new high-level task force to issue recommendations on how the government can find additional sources of tax revenue to narrow the 'tax gap' between what is legally owed by taxpayers and what is actually paid.

As Congress prepares to administer the scalpel to Obama's expansive budget in a bid to trim the budget deficit, which the Congressional Budget Office (CBO) has said will be markedly higher over the next decade than predicted by the administration, White House budget director Peter Orszag has revealed that Obama is launching a review panel to examine ways in which the US tax code can be tightened up to yield more revenues, particularly in the area of corporate tax.

Orszag told the Washington Post in a report published on March 25 that the only constraints on the panel's remit will be to ensure that taxes aren't increased for individual taxpayers earning less than USD250,000 annually during 2009 and 2010, when the US economy is expected to be in recession or showing the first signs of recovery.

Sitting on the panel will be a number of special economic advisors and the review will be led by former Federal Reserve Board chairman Paul Volcker. It will report back to President Obama by the end of this year.

The latest estimates put the tax gap at about USD300bn per year annually, but it is believed that a third of this would be easily collectable if the government was more aggressive in the area of tax compliance. Initiatives already being studied by the Obama administration include changes to the tax code to prevent US multinationals from deferring payment of corporate tax on domestic sales made by foreign subsidiaries, changing the tax treatment of 'carried interest' for hedge fund and private equity fund managers, tackling the use of tax shelters, increasing information reporting, and cracking down on offshore financial arrangements.

"Over the next several months, the President will propose a series of legislative and enforcement measures to reduce such US tax evasion and avoidance," Treasury Secretary Tim Geithner told the House Ways and Means Committee in a budget hearing earlier this month. He added: "We will propose rules to both reform US corporations' ability to defer foreign earnings and deter high income individuals and corporations from using tax havens to avoid taxation."

The latest forecast from the CBO shows that the federal deficit will be a cumulative USD2.3 trillion higher over the decade to 2019 than the USD7 trillion predicted by the administration. This has put extra pressure on Obama to find additional funding for his USD3.6 trillion budget request for the 2009/10 fiscal year, which includes substantial increases in spending on healthcare, education, energy and other infrastructure projects. Budget blueprints due to be unveiled by both arms of Congress today (March 25) are likely to strip out several of Obama's spending and tax initiatives, including his proposal to permanently enact the Make Work Pay tax credit - a core feature of his economic policy.

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