July 02,2008

New GAO Report Supports Baucus Proposals To Close Tax Gap

GAO report cites tax preparer regulation, better information reporting as viable methods to trim tax gap

Washington, DC – Senate Finance Committee Chairman Max Baucus (D-Mont.) welcomed this
week the Government Accountability Office’s (GAO) report on the September 6, 2007, Joint
Forum on Tax Compliance, which discussed methods to increase compliance with tax laws.
Though the report did not make any conclusions or recommendations, it did list a number of
options that forum participants agreed were viable methods for cutting the tax gap, or the
difference between what taxpayers pay voluntarily and what the law says they ought to pay. Sen.
Baucus has championed two of the forum’s listed options: increased reporting of tax information
and tax preparer regulation.

“This report underscores that the tax gap is a serious problem that is not going to be easy to
fix,” Baucus said. “The complexity of our tax laws and the increasingly global economy are
driving the need to take a good look at tax reform in order to maintain our nation's
competitiveness, improve tax compliance and reduce taxpayer burden. I am holding a
series of hearings on tax reform that will explore options to improve tax compliance and
ideas to improve tax administration that will help reduce the tax gap without raising taxes
on anyone.”

The Joint Forum on Tax Compliance was a combined effort of the GAO, the Joint Committee on
Taxation (JCT), and the Congressional Budget Office (CBO) to start a dialogue on options for
closing the tax gap, which is the difference between the amount that taxpayers pay on time
voluntarily and what they should pay under the law. The IRS estimates that the government lost
$290 billion to the tax gap in 2001, though forum participants agreed that these estimates are
likely understated. The full text of the GAO report, Highlights of the Joint Forum on Tax
Compliance: Options for Improvement and Their Budgetary Potential, can be found online at
http://www.gao.gov/new.items/d08703sp.pdf.

All of the forum participants also agreed that the 84 percent of taxpayers who follow tax laws
have to carry the extra burden left by those who don’t. The GAO predicted that closing the tax
gap by a mere percentage point could produce an extra $3 billion annually, and said that reducing the tax gap would improve the nation’s fiscal stability.

“Most importantly, this is about fairness – this doesn’t raise anyone’s taxes,” Baucus said.
“The sooner we get full tax compliance, the sooner we can lower the tax burden for honest
Americans who abide by our tax laws. I look forward to working with the GAO, JCT, and
CBO to explore options for reform.”

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