Budget Gap Can Shrink with Stepped Up Tax Collection

Article excerpt

Here's one suggestion for getting rid of that pesky $450 billion federal budget deficit: Collect all the taxes that Americans owe.

"If we had 100 percent compliance with the tax laws, we would probably be operating at break-even," says Donald Alexander, a former Internal Revenue Service commissioner.

Mr. Alexander concedes that 100 percent compliance is impossible to attain. Also, his estimate of noncompliance may be too high. The IRS itself estimated that $232 billion in taxes were due in 1998 but never collected.

No one knows a really accurate sum. Congress, led by Republican legislators, stopped the IRS from systematically measuring tax compliance for all but working poor people after 1988.

Prior to then, thousands of representative taxpayers were put through what one expert called "an audit from hell" to determine if they had hidden income and had not paid their legal share of taxes. The findings were used by the IRS to direct its compliance efforts more efficiently.

Whatever the actual number, uncollected tax revenues are huge. Leonard Burman, a former Treasury official now at the Urban Institute, told the House Ways and Means Committee July 17 that if half of due taxes were collected over the next decade, Uncle Sam would have an extra $1.7 trillion.

That sum would cover the entire cost of the 2001 and 2003 Bush tax cuts, he figures. Or the money could eliminate more than two- thirds of federal debt owed to the public. Or it could cover a cut in all personal income-tax rates of more than 10 percent.

Tax evasion "undermines" the tax system, Mr. Burman testified. "It is unfair.... And it feeds on itself, reducing respect for the integrity of the tax system and leading to more cheating.... The lost tax revenue inevitably means higher taxes on law-abiding citizens."

What could be significant is that deeper concern with uncollected tax revenue and the related budget shortfall shows signs of becoming more bipartisan.

"Maybe it is dawning on the Republicans that people have to pay their taxes," Burman says.

Some Republicans - not all - have seemed to argue that tax evasion may be OK because it lowers tax burdens and trims revenues for bloated federal programs.

Burman noticed a shift in congressional sentiment between his testimony before the House Budget Committee July 9 and the House Ways and Means Committee a week later. Talk of IRS harassment of taxpayers had turned to concern over lost tax revenues.

In that week, the White House's Office of Management and Budget had boosted its budget-deficit estimate for fiscal 2003 to $455 billion from $304 billion estimated last February. That increase meant one out of every three dollars Washington spends outside of the self-funded Social Security system will be paid for by borrowing - the highest share of on-budget spending financed by deficits since World War II.

"The [Republican-controlled] House is beginning to be concerned about it," says Alexander, who now works for a Washington law firm. …