I'm a Pundit Too

Thursday, April 19, 2007

Death and taxes, and cheating on one of them.

There is discussion between the Treasury and the Senate on the issue of the Tax Gap. The gap is the difference between taxes owed and taxes actually paid. The IRS estimated that the difference in 2001 was $345 billion, mostly due to underreported income.

Now, when I say taxes owed, I am of course using the definition put forth by law. I am not going to tell you that you owe the government a certain amount of money simply because the government says so. I certainly don’t feel that I owe what I pay each year considering the amount that is wasted on Alaskan bridges. I also don’t think I owe the government any money for health care since I pay a good amount of money to provide health insurance for my family. I realize that some people don’t have insurance, but to date no one has explained to me how this means I owe them something.
To clarify, when I say taxes owed, I’m talking about what the government claims is owed. It is a significant amount each year that is estimated at over $2 trillion since 2001. In fact, the amounts each year are very similar to the federal budget deficit and would probably cover that gap.

There are two thoughts coming from up above. U.S. Treasury Secretary Henry Paulson said "I have come to the conclusion that there is a big part of the tax gap we simply won't be able to reach without adding draconian and painful requirements on all taxpayers." One idea he was given was to actually require individuals to report transactions with service providers like doctors and mechanics who may not properly report their fees. He believes that this and other ideas are bad ones that cause undue strain of the people who do pay their tax requirements. The IRS claims that this is about 84% of us.

What does the senate say? Senate Finance Committee chairman Sen. Max Baucus of Montana said failing to collect taxes that are owed "breeds disrespect for the law" and needs to be dealt with quickly.

Both men may be correct. It may be too costly to fill the gap. At the same time, if nothing is done the gap would grow and the revenues would not be collected. This would put a horrible strain on the Senators who rely on your tax dollars to fund their pork projects that help them get re-elected. It also hurts things like military readiness and the intelligence agencies that are working to prevent another 9-11.

Paulson did make a radical suggestion to help close the gap, so radical and extreme that I have to assume it will never see the light of day. He suggested a simplification of the tax code. I know, I laughed too. He claims that this would help to reduce honest mistakes and would help give cheats fewer places to hide.



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