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Shortchange on Taxes Means Shortchange on the Middle Class

by Marc Granowitter  |  January 09, 2012

That taxpayers shortchange the government on taxes is not news, that they do it to the tune of $450 billion annually is. According to a new IRS report, “New Tax Gap Estimates,” released last week, acts of underreporting, underpaying and not filing are contributing to a growing gross federal tax gap. Overall, the gap includes $28 billion from not filing, $376 billion from underreporting and $46 billion from underpaying. Through federally enforced payments and late payments from taxpayers, the government closed that gap by $65 billion, providing for a net tax gap of $385 billion in 2006, a marked increase from $290 billion in 2001.

To close that gap even more, the IRS makes two astute suggestions: get wealthy individuals back into the tax system by stopping offshore tax cheating and increase third-party reporting and transparency for businesses. Many corporations — General Electric, Bank of America and ExxonMobil — reap billions in profits without paying a cent in federal taxes.

Rules are rules. Working families know that. If all taxpayers played by the rules and paid the taxes owed, the federal deficit would shrink, reducing the burden on the middle class. If the net tax gap was cut by even 50 percent, revenue would increase by $1.9 trillion during the next 10 years. This would reduce Congress’ deficit-mania. It would limit the perceived need to cut federal funding for vital services. It would free up funds to create jobs, and it would provide opportunities to invest in public schools, mass-transit and water sanitation systems.

In shortchanging the government on taxes, taxpayers are shortchanging the working middle class. Federal legislative and regulatory efforts to increase compliance and accurate reporting must be strengthened. Individuals must take responsibility for their part, and Congress and the administration must work together to reduce and ultimately close the federal tax gap.

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