- The Washington Times - Wednesday, April 18, 2007


Treasury Secretary Henry M. Paulson Jr. warned Congress yesterday that cracking down hard on tax cheaters would require “draconian and painful requirements on all taxpayers.”

Many Democrats contend that the Bush administration is doing too little to close the so-called “tax gap,” estimated at $290 billion in 2001. They say that if everyone paid all they owe, Congress could shrink the budget deficit and pay for new programs without raising taxes.

At a Senate Finance Committee hearing, Mr. Paulson acknowledged that revenues go uncollected each year primarily because of the failure to fully report income, especially by small businesses. But instituting rules to make sure businesses report all income would be “unnecessarily painful,” he said.

For example, he said, average people would be burdened if they had to report to the Internal Revenue Service their transactions with doctors, auto mechanics or dry cleaners who might not report the income.

The Democrat-led Senate’s budget proposal, which assumes the government soon will start collecting more unpaid taxes, is “unrealistic,” Mr. Paulson said. “The tax gap is simply not a pot of gold.”

Committee Chairman Max Baucus, Montana Democrat, dismissed Mr. Paulson’s viewpoint, saying, “it astounds me that the Treasury does not have a comprehensive, credible plan” for closing the tax gap.

“It is the Treasury’s job to fix it. Yet the administration does not appear to take the job seriously,” Mr. Baucus said.

He is pushing several proposals to close the gap, such as increasing electronic transactions and using more sophisticated technology to identify suspicious tax filings.

IRS Commissioner Mark Everson told the committee that more actions have been taken to enforce tax laws.

Mr. Baucus was unimpressed, noting that in June, he asked Mr. Everson for a “reasonable but aggressive plan to reduce the tax gap. He agreed to provide a plan. But he has not delivered one.”

Mr. Baucus told Mr. Paulson to develop a plan within 90 days for boosting annual tax compliance within a decade to 90 percent, six percentage points higher than at present. Such a change would generate an additional $150 billion annually, he said.

Earlier this year, President Bush asked Congress to approve 16 changes to the tax code to help the IRS collect unpaid taxes that he said was worth $29.5 billion over 10 years, and the congressional Joint Committee on Taxation said was worth $19.5 billion.

Among other measures, his plan would require financial institutions to report the purchase price of securities to the IRS, a change that would discourage taxpayers from inflating their costs to lower their capital gains liability.

Mr. Baucus considers Mr. Bush’s reforms weak, but Mr. Paulson defended them. “Our legislative proposals attempt to balance the burden they impose on taxpayers against the impact they will have on improving compliance,” he said.

The financial services industry also opposes forcing companies to help the IRS watch over stock buyers.

The Finance Committee’s most senior Republican, Sen. Charles E. Grassley of Iowa, joined Mr. Paulson in warning Democrats not to rely too heavily on closing the tax gap to balance their budget.

“I’m worried that some members have their head in the clouds when it comes to the tax gap,” Mr. Grassley said in a written statement. “Some members view the tax gap as money in the pocket to spend on favorite proposals. Nothing could be further from the truth. Closing the tax gap is a difficult and grinding process.”

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