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US Senate Budget Panel Mulls Tax Reform To Close Tax Gap January 23, 2007

Posted by notapundit in Congress, Politics, US News.
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WASHINGTON (Dow Jones)–The U.S. Senate Budget Committee, seeking ways to narrow a $290 billion shortfall in tax collections, plans to explore ways to simplify the tax code, the panel’s chairman said Tuesday.

Senate Budget Committee Chairman Kent Conrad, D-N.D., said he intends to create a working group to examine ways to overhaul the U.S. tax code. He named Sen. Ron Wyden, D-Ore., and sponsor of a flat-tax reform plan, and Sen. Debbie Stabenow, D-Mich., to the working group.

“I think it’s absolutely urgent that we come back with specific proposals,” Conrad said.

He also intends to ask Sen. Charles Grassley, R-Iowa and former Senate Finance Committee chairman, to participate in the working group. Conrad also announced a working group to address health care issues.

Sen. Judd Gregg, R-N.H., agreed that simplifying the tax code will help address the problem. “We need to take another look at our tax structure and come up with something that’s more manageable, understandable, and therefore more enforceable,” Gregg said.

Conrad spoke as the committee held a hearing on the $290 billion tax gap, a measure of uncollected taxes. The tax gap is the difference between what taxpayers voluntarily pay and what they should pay under the law. Underpayment by small businesses and individuals are a top cause for the shortfall.

Witnesses from the Government Accountability Office and Citizens for Tax Justice said simplifying the U.S. tax code would be one strategy to help improve collections.

Robert McIntyre, director of the Citizens for Tax Justice, said Congress should consider tax reform similar to the landmark 1986 tax reform act. The thousands of tax breaks and other provisions added to the code since 1986 have “created opportunities for those who would like to be less than honest.”

Conrad also said closing the tax gap will be a priority as the budget committee seeks revenue sources to balance the budget.

“Before we start talking about tax increases for anyone, we (need to) aggressively go after this tax gap,” Conrad said.

McIntyre also urged Congress to shut down tax shelters in overseas tax havens. He also called for a doubling of the Internal Revenue Service enforcement budget over the next five years.

The White House, in its 2008 fiscal year budget proposal due out next month, is expected to focus on ways to narrow the tax gap. In September, the Treasury Department proposed several solutions, such as multiyear commitment to research on tax evasion and cheating; continued improvements on IRS computer technology; better enforcement and taxpayer service. It also called for reform and simplification of tax laws and closer coordination with business groups and international tax officials.

Both Conrad and Gregg mentioned changes in reporting of capital gains on securities and other assets sales would be one strategy to address the tax gap.

“That’s clearly a direction we are moving into and clearly it should occur,” Gregg said.

In October, Congress’ Joint Committee on Taxation spelled out several options to close the tax gap, such as having brokers to report to the IRS the adjusted basis of publicly traded securities sold during the preceding taxable year. Adjusted basis measures the original cost of a security for tax purposes.

Such a change could result in investors paying higher taxes because the new records could document significant capital gains. The IRS estimates that underreporting of all capital gains resulted in $11 billion in uncollected taxes in 2001.

By Rob Wells, Dow Jones Newswires

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