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U.S. should go after tax cheats, in Swiss banks and elsewhere

With the federal income tax deadline arriving next month, Americans will soon be thinking about their taxes. And while people are thinking about their income tax bill, it's useful to remember that they are paying more than they should because others cheat on their taxes.

All income tax payers should be aware of the “tax gap,” which is the difference between the amount of money the Internal Revenue Service says is owed and the tax dollars actually collected. The latest estimate is that the annual federal income tax gap is at least $385 billion.

That massive amount of tax cheating can be traced to offshore accounts used by the wealthy as well as small business owners who underreport income or overreport expenses to cut their tax bill. The tax gap also includes illegal drug sales and unreported cash transactions.

The big tax gap figure means honest taxpayers pay more than they would if all the taxes owed were collected by the IRS.

The federal income tax gap was in the spotlight in Washington, D.C., recently when the U.S. Senate again took aim at Swiss banks holding billions of dollars for wealthy Americans in secret accounts, helping them to avoid U.S. taxes. The latest report says that 22,000 Americans have billions stashed in secret Swiss bank accounts that enable them to avoid U.S. taxes.

The Obama administration has made some progress through the U.S. Justice Department putting pressure on Switzerland's leaders, but more needs to be done. So far, Swiss authorities have turned over only 238 names tied to the secret bank accounts.

While it is not illegal for Swiss bankers to accept deposits from Americans, it is illegal for them to help those customers avoid U.S. taxes, which is what some Swiss bankers have been charged with doing. A 178-page report released by the Senate's permanent subcommittee on investigations found that Credit Suissse bank helped U.S. citizens avoid taxes using secrecy techniques that Sen. John McCain decribed as something out of a spy novel.

U.S. pressures on Swiss banks to reveal account holder names and the publicity surrounding that effort has resulted in 43,000 U.S. taxpayers coming forward and pay about $6 billion in taxes and penalties. U.S. investigations are targeting 14 Swiss banks.

These efforts by the Justice Department and IRS should continue — in Switzerland, the Caymen Islands and any other so-called tax haven where U.S. citizens can hide money and avoid paying their fair share of taxes.

The broader effort of tax enforcement should continue, to clamp down on tax cheating, whether overseas or on U.S. soil. And in that effort, Congress has not helped — by cutting the IRS budget. Instead of cutting, Congress should boost funding for IRS enforcement efforts because every additional dollar spent on stepped-up enforcement produces an estimated $4 in increased tax revenue — a good return. And not only does the additional tax revenue help, but making sure tax cheats are pursued, caught and prosecuted maintains public confidence in the fairness of the tax system.

Some in Congress like to beat up the IRS because it's politically popular: Everyone hates taxes. But while some practices by the IRS are rightfully criticized, the overall effort to collect tax revenue is an important job. And complaints about taxes mistakenly target the IRS, when in fact, it's Congress that is responsible for the loophole-ridden and overly complicated tax code.

Most Americans, at first hearing, might not care about U.S. efforts over secret Swiss bank accounts. But they should — more tax cheats getting caught means more money for the U.S. Treasury and lower deficits or lower tax bills for honest taxpayers.

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