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THE TAX GAP IS SMALLER THAN THE ONE BETWEEN THE EARS OF A CONGRESSMAN

March 07, 2007

An excellent article by Ryan Donmoyer for Bloomberg bursts the bubble of the congresscritters, especially Charlie Rangel, who look to harvest the tax gap for billions in easy money (Hat tip: TaxProf Blog).

The tax gap is the difference between income taxes theoretically due and those actually collected - estimated at around $300 billion or so. The problem is, there isn't that much low-hanging tax fruit for the picking. To really get it requires much more enforcement than anybody much cares to see:

The reason, say tax experts, is that doing so would require thousands of new Internal Revenue Service agents as well as stricter filing rules, more stringent audits, tighter scrutiny of small businesses and other politically unpopular steps that [Treasury Secretary] Paulson says would penalize "honorable and honest" taxpayers.

`Pot of Gold'

"Turning the `tax gap' into the pot of gold requires turning the IRS into a beast," says Pamela Olson, a former assistant Treasury secretary for tax policy under President George W. Bush. "They might be able to do it, but they won't like the result."

That won't keep Congress from trying. I think tax gap closers will feature prominently in any tax bills that come out of Congress later this year. Likely "gap closers" will include:

- Requirements that brokers track stock basis and report securities gains to IRS and taxpayers on 1099 forms.

- Requirements for credit card issuers and intermediaries like PayPal and eBay to report payments over $600 to any single recipient.

Prior Tax Update Coverage:

BLOGGERS ON TAX POLICY IN A DEMOCRAT-CONTROLLED CONGRESS

PEARLS OF TAX WISDOM

THE TAX GAP AND THE SCHMUCK FACTOR

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