Treasury Secretary Henry Paulson said trying to close the "tax gap" -- the difference between taxes owed and taxes paid -- can't be done without "Draconian and painful requirements on all taxpayers." Paulson testified before the Senate Finance Committee on April 18, 2007. His dim view cannot have cheered lawmakers who want to collect these unpaid taxes (estimated by the IRS at $345 billion a year) as a way of finding additional revenue without raising taxes.
Assistant Secretary For Tax Policy Eric Solomon also testified before the Committee. He said that tax gap results from a variety of errors, including non-filing, underreporting of taxes, or underpayment of taxes. He estimated that over 80 percent of the gross tax gap is attributable to underreporting of tax (including underreported income or overstated deductions and credits). Over 40 percent of the gross tax gap is attributable to underreporting of net business income by individuals (affecting both individual income and self-employment taxes).
A Wall St. Journal (subscription required) article published on April 19, 2007 says that Finance Committee members expressed frustration with the Bush administration for failing to push aggressively for better tax compliance with federal tax laws.
