Unpaid U.S. taxes hits $2,680 per household

updated 3:53 p.m. ET March 4, 2007

WASHINGTON - Think of the uses of $300 billion, the annual gap between what taxpayers owe and what they pay.

It would more than cover the federal deficit for a year or the extra money President Bush wants in 2007 and 2008 for Iraq and Afghanistan.

It would pay for the $125 billion that Congress has agreed to spend on Hurricane Katrina relief, with enough left for three years worth of federal education programs.

Such are the dreams of lawmakers pressing the Internal Revenue Service to get more aggressive about reducing what is known throughout Washington as "the tax gap."

Skeptics, however, scoff at the notion there is a pot of gold waiting to be claimed. They say it is an illusion as long as nothing is done about the hopelessly complicated tax system.

An IRS study last year concluded that the tax gap in 2001 was $345 billion. Of that, $197 billion came from underreporting on individual income tax returns and $88 billion from underreporting by corporations and the self-employed. The rest came from those not filing or not paying the proper amount.

That gap narrowed to $290 billion after enforcement efforts and late payments were factored in. Still, that left the government collecting only 86 percent of the more than $2 trillion it was owed in 2001.

That translated into a "surtax" of about $2,680 per household in 2001, the national taxpayer advocate said at a recent hearing of the House Budget Committee. "That is an extraordinary burden to ask our nation's compliant taxpayers to bear every year," Nina E. Olson said.

"It's not just a budgetary problem," the committee chairman, Rep. John Spratt, D-S.C., said at the hearing. "It raises fundamental issues of moral fairness."

The new Democratic majority sees these uncollected billions as a major source of revenue that could be used to pay for education, health and other priorities without busting the budget.

The IRS does claim some progress in cracking down on cheaters. The agency's commissioner, Mark Everson, said enforcement revenue has climbed from $34 billion in the 2002 budget year to $49 billion in 2006. The audit rate for individual returns has gone from a little over one in 200 in 2001, to about one in 100 in 2006, with the returns of millionaires getting closer looks, Everson said.

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