The IRS says that the total taxes paid in 2006 was lower by a massive $450 billion compared to what was supposed to have been paid. That comes up to an underpayment of about 17%. 2006 is the latest year for which the IRS has gathered such statistics. The shortfall in taxes far exceeded the size of the entire federal budget deficit that year, which was $248 billion. However, this amount was reduced to about $385 billion or 14% after audits and other collection efforts were carried out. This still exceeded the budget deficit, meaning that if the shortfall was actually collected, the budget would have shown a surplus instead of a deficit for 2006.
This figure brought about an immediate reaction from lawmakers who spoke up about the need to revise the tax code to reduce the “tax gap”, the term commonly used to refer to the difference in the amount of taxes that should have been collected and the amount actually collected. Michelle Dimarob (R Mich), spokeswoman for House Ways and Means Committee Chairman Dave Camp said, “The best way to increase compliance is to reform the tax code to make it simpler”. In Dimarob’s opinion, such a move would cause fewer errors and “greater certainty, which is key to job creation.”
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