Mr. President, I wish to finish the discussion I started earlier today about the tax gap and efforts to close it. As I said this morning, the tax gap is the difference between what is paid in taxes…
Mr. President, I wish to finish the discussion I started earlier today about the tax gap and efforts to close it. As I said this morning, the tax gap is the difference between what is paid in taxes and what is actually owed. While more reliable and timely data on the tax gap is greatly needed, the tax gap was thought to be $345 billion for the tax year 2001, which seemed to be the year that the IRS had the latest information where they could put together something that was fairly solid for that year.
I also pointed out this morning that many of my colleagues in the Senate see the tax gap as a sort of magical tonic that can be used to cure all sorts of ailments. Some people see $345 billion in AMT relief or health care spending or national debt reduction without thinking about what would be involved in actually collecting the money. So I am raising the question: Do people think through whether every dollar will be brought into the Federal Treasury?
The IRS is already making some progress in closing the tax gap. This morning I mentioned the Internal Revenue Service told the Budget Committee it could reduce the tax gap by nearly $70 billion, of that $345 billion, in the year 2007.
So where does that leave us? Can we do more in enforcement? The administration has proposed an increase in funding for the Internal Revenue Service. That increase looks toward the tax gap with funds directed toward increased data matching, improved research, as well as more auditors--auditors to make sure that more money comes in. I suggest my colleagues might also want to make certain that if we consider adding more Internal Revenue Service employees, we have greater confidence that the Internal Revenue Service is utilizing current resources effectively. In other words, before we hire more people, we ought to make sure the existing employees at the Internal Revenue Service are being used in the most efficient way to bring in the most money possible.
That doesn't preclude more money, but that is a necessary first step before we automatically think of more money and more employees.
For instance, the IRS has hundreds of employees, according to a Treasury inspector general for tax administration report, that do part- or full-time union work. This is thousands and thousands of work hours that could be spent going after the tax gap. What could we gain if we directed all those union hours to actually working on the tax gap before we appropriate more money to hire more employees?
So we have proposals then for increased enforcement. Let me remind my colleagues, though, that the Joint Committee on Taxation--that is a congressional committee that specializes in watching the Tax Code and making estimates and studying all ways to make the Tax Code more efficient and bring in more money--that committee will not give us a score for additional dollars based on increased enforcement. So we can talk all we want about hiring more people to bring in more revenue, but until that revenue is in the bank, the Joint Committee on Taxation isn't going to give us any credit for it.
As we are looking at budget debates over this week and next week, keep that in mind. That isn't going to get Senators anywhere in terms of reducing projected deficits or paying for tax cuts or bringing in more money to spend someplace else.
It is important to emphasize the Commissioner of the Internal Revenue
Service made it clear to the Budget Committee a few days ago at a hearing that we cannot audit our way out of the tax gap. The Commissioner also warned about increasing the IRS budget too quickly if we decide to go the route of hiring more people by giving more money because he said a big increase in staffing would harm taxpayers' rights if the IRS was not able to grow in a managed way to control the outcome.
We can look at what we can possibly do legislatively beyond greater enforcement. The Democratic leadership hasn't proposed anything new, but the administration has put forward some proposals in the budget--in its own budget, meaning the budget of the executive branch. Many of the administration's proposals deal with information reporting. Information reporting is an important way to improve tax compliance. This is very clear from all the work that has been done so far on the tax gap.
However, information reporting places additional burdens on taxpayers, and it is very frustrating that we often find the Internal Revenue Service is not doing enough to match or review the documents taxpayers are already providing the IRS as a paper trail to make sure all taxes are paid. Needless to say, this greatly limits the benefit information reporting provides.
Setting these concerns aside, the administration in their budget has proposed, one, information reporting on payment to corporations; two, basis reporting on securities sales; three, broker reporting; four, reporting of merchant payment card reimbursement; five, increase information return penalties; six, taxpayer identification number verification for independent contractors; and seven, information reporting on certain Government payments.
The administration has proposed other proposals, including increased penalties, expanded IRS access to information, and required electronic filing as some of the other new proposals.
This is a very comprehensive list of proposals coming from the administration. Is it everything? No, but it seems to me this is a serious start and shows that people within Treasury, within the Office of Management and Budget, and maybe even within the White House, are very concerned about closing the tax gap.
If Senators who have attacked the Secretary of Treasury and the Internal Revenue Service believe more can be done, I suggest they should come forward with their own proposals and add to the multitude I read coming from the executive branch of Government.
I think Senators will find that while it is easy to complain about what is coming out of the Treasury's kitchen, it is a lot harder to get in there and do it themselves. I think Senators need to be careful-- very careful--at putting out pie-in-the-sky numbers for what can be achieved by reducing the tax gap without at the same time putting forward their own detailed, concrete, Joint Tax Committee-scored proposals that show how it can be done.
That brings me to a chart. This chart shows there is a lot of smoke and mirrors when it comes to the tax gap, in other words, all the people who are saying they are going to use the tax gap to reduce the deficit, to fund tax cuts or even to take the money and spend it on some new program or increase spending on existing programs. There are a lot of ideas out there.
What I want this chart to demonstrate to us is that there is a lot of smoke and mirrors when it comes to the tax gap. We can't use smoke and mirrors to pay for tax cuts or to decrease the deficit; we have to have proposals that are in detail, black and white, and are scored by the Joint Committee on Taxation, our experts who are on top of the Tax Code and how much money will come in or how much money we lose if we cut taxes.
Tax gap proposals shouldn't be used for spending. The tax gap is appropriately viewed as unfairly placing a heavier burden on compliant taxpayers, 85 percent of the people who pay what they owe and file accordingly.
If we enact tax-gap closers, they should be used to reduce taxes or reduce the deficit, not to increase spending.
Let me conclude my discussion of the tax gap by saying you can have a blue Moon, you can have blue cheese, you can have blue-suede shoes, but when it comes to balancing the budget, you can't do it with blue smoke and mirrors. That, unfortunately, is what so much of the tax gap is right now: blue smoke.
I strongly encourage the Budget Committee chairman and other Senators not to use blue smoke during the upcoming budget resolution debates. That is going to happen Wednesday and Thursday in the Budget Committee this week. It is going to happen all next week on the floor of the Senate.
Now I will review some of the issues we must consider as the Senate works on its budget resolution. In an earlier visit with my colleagues in the Senate, I discussed the importance of preventing a tax hike on the American people. Anyone who considers themselves a deficit hawk needs to do more than raise taxes. So I challenge the new Democratic majority to also examine the spending side of the ledger; that is, if they are truly serious about deficit reduction.
In another visit with my colleagues from the floor of the Senate, I highlighted a study prepared by Goldman Sachs. That study shows that the likely result of letting tax relief expire could lead to a recession. Since tax relief was enacted, Federal revenues have increased, employment has increased, household wealth has increased--in fact, household wealth has increased to the highest level it has ever been in the history of our country--and the S&P 500 index has consistently moved upward. Again, a failure to extend tax relief or make it permanent puts all this at risk, and at risk for nothing.
Anyone serious about deficit reduction needs to also look, then, at the spending side of the ledger. In a third visit that I had with my colleagues from the Senate floor, I pointed out that Democratic revenue raisers did not come close to covering new spending contained in Democratic amendments when we had the budget up exactly 12 months ago this month. In many cases, I showed the same offset was used in multiple amendments to pay for multiple projects, just like every dollar coming into the Federal Treasury could be spent two, three, four times, and somehow just multiply and, like blue smoke, solve all of our problems.
If the Democratic leadership is serious about pay-go, and that is short for pay as you go, and if they are serious about deficit reduction, they need to be realistic about where the money is going to come from to cover any new spending proposals. The budget plan advocated by the other side last year would have either increased the deficit or gutted tax relief that was passed in 2001 and 2003, including items such as the alternative minimum tax fix that we did, and all of these things the other side of the aisle claims to support and yet have proposals that would gut them or increase the deficit.
I want to state my intention to fully cooperate with my colleagues of both parties to produce a budget that preserves our growing economy while addressing the needs of our government. I am particularly looking forward to exploring ways to use the Tax Code to help more Americans acquire health insurance. I am also looking forward to using the budget resolution to ensure, on a revenue-neutral basis, that we continue to pursue tax simplification and tax reform. In order to produce the best possible budget, we must be careful not to endanger our growing economy. We must be willing to examine spending. We must not just focus on revenues, and in the whole process, we have to be intellectually honest about how far we can push revenue raisers and other offsets. In other words, avoid the smoke and mirrors.
Mr. President, I yield the floor.