US Treasury Secretary Henry Paulson has recently told Senators that considerably lessening the tax gap between federal taxes owed and taxes paid may not be possible ‘without adding draconian and painful requirements on all taxpayers,’ most of whom pay their taxes in full. However, he also said that the administration is unlikely to recommend plans to revamp or simplify the US tax system any time soon.
Paulson further said, ‘There isn’t a major tax reform proposal being put forward now, and I don’t see that on the dockets in the near future,’ at a Senate Finance Committee hearing on the tax gap, which refers to the expected $345 billion in taxes due but not paid to the federal government. While addressing the committee, which had asked for a better sense of the administration’s goals and timetable for reducing the billions of dollars annual tax gap, Paulson referring draconian laws said, ‘I don’t believe any of us really want to do that’.
Paulson further added that the administration had focused its energies on tax cuts and efforts to improve the financial health of the Social Security and Medicare retiree programs. A panel appointed by President George Bush had suggested comprehensive changes to the tax code in late 2005 after months of deliberation and public hearings.
Administration officials placed the plan on hold in 2006, considering the fact that any proposal would be doubtful to draw support from Democrats in a congressional election year. In the mean time, Democrats returned to control both houses of the US legislature that year, drastically altering the political equation. The White House has proposed 16 gap-closing measures in February that are pending in Congress.
However, a crucial feature of the proposal would have been to eliminate the alternative minimum tax, a detested parallel tax system intended at making sure that wealthy taxpayers pay at least some tax, although the system is increasingly targeting middle-income taxpayers than the wealthy ones.
The IRS assesses the tax gap at $345 billion annually, which is sufficient to wipe out the federal deficit. Moreover, most of the gap is credited to unreported income, much of it collected by small businesses, farmers and landlords but not reported to the IRS. Though the amount of the gap in dollars has increased alarmingly with the US economy, the rate of submission has remained comparatively constant for four decades.
