off the charts
POLICY INSIGHT
BEYOND THE NUMBERS
BEYOND THE NUMBERS
Senator Chuck Grassley called this week for better tax enforcement rather than additional revenues to address the budget deficit. He’s right — and wrong. It’s important to step up tax enforcement, but that can’t take the place of raising more revenues to reduce the deficit.
It’s true that we need to close the tax gap. As we’ve written before, the federal government doesn’t collect hundreds of billions of dollars in taxes that are legally owed each year. There are several straightforward steps available to narrow the gap.
First, Congress should reinstate some solid proposals that it enacted — and then repealed before they could take effect:
- 1099 Provision. Health reform had a provision to strengthen businesses’ reporting requirements, which would have helped prevent vendors from artificially cutting their tax bills. Reinstating it would reduce the deficit by $21.9 billion over ten years, according to the Congressional Budget Office (CBO). The massive underreporting of business income, which cost more than $122 billion in 2006, is the single largest contributor to the tax gap. More third-party information, like this 1099 effort, would help address this problem.
- Contractor Withholding. Withholding requirements are another essential mechanism to ensure compliance. The George W. Bush Administration secured a needed withholding requirement for government contractors, but Congress killed it in 2011. Reinstating it would reduce the deficit by $11.2 billion over 10 years, according to the Joint Committee on Taxation.
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