Washington-- U.S. Senators Evan Bayh (D-IN) and Tom Coburn (R-OK) and Congressmen Rahm Emanuel (D-IL) and Walter Jones (R-NC) today re-introduced legislation to help close the $17 billion capital gains "tax gap" by making the tax code fairer and simpler for American taxpayers. At a press conference today, Bayh, Coburn and Emanuel said that the Simplification Through Additional Reporting Tax (START) Act will require brokerage houses and mutual fund companies to track and report to taxpayers and the IRS investment information related to capital gains taxes, making it easier for taxpayers to file their tax returns and helping the IRS crack down on would-be cheaters.

"Our current deficit is a threat to our economy, our security and our future - it's time we did something to make sure that our children will inherit more from us than our unpaid bills," Senator Bayh said. "That's what our initiative will help accomplish. It's a sensible approach that is attracting rare cooperation in Washington - among Republicans and Democrats and between the President and Congress. Hopefully, this will set a pattern for dealing with other issues in the future."

"Those who unintentionally or intentionally fail to pay their fair share of taxes are costing the federal government billions of dollars each year in revenue. This bill will give the IRS the tools to both increase accuracy in capital gains reporting, and crack down on would-be cheaters," Dr. Coburn said. "However, increasing tax collections is useless unless Congress starts making tough choices and begins to prioritize our spending. Congress also must reform the budget process to end the 'earmark favor factory' as well as give due process to oversight in order to root out the annual $200 billion of waste, fraud and duplication in government spending."

"The growing tax gap puts a heavy burden on every single taxpayer. Collecting the billions of underreported dollars will help ensure all taxpayers pay their fair share," said Emanuel. "The GAO, the Joint Tax Committee, the National Taxpayer Advocate and even the President's Budget proposal recommends this approach for closing the tax gap. It's the right thing to do."

The START Act was first introduced in March 2006 and is already attracting widespread bipartisan support upon its re-introduction, with 14 additional co-sponsors in the Senate and an additional six in the House. In addition, President Bush included a virtually identical proposal in his budget proposal last week.

Currently, about $17 billion in capital gains taxes go unpaid every year. A portion of this tax gap results from taxpayers not understanding how to compute their capital gains. However, a larger source of the problem is taxpayers who intentionally inflate the original value of their investments, thereby hiding gains or manufacturing losses. Since the IRS has virtually no ability to detect this misreporting, it can be done with impunity, leaving honest taxpayers to pick up the tab.

The START Act will require that brokerage houses and mutual fund companies report to taxpayers and the IRS the "adjusted cost basis," or purchase price plus any necessary adjustments, when they sell a stock, bond, or mutual fund. This will help individuals file accurate tax returns without having to do confusing and time-consuming calculations. Last year, 32 million taxpayers reported a capital gain or loss. On average, it takes 12 hours to fill out the capital gains tax form.

The START Act makes the tax code fairer by ensuring that the IRS treats capital and wage income the same way when it comes to its ability to ensure compliance. Americans cannot underpay their taxes related to wages because their employers submit wage information reports, W-2 forms, to the IRS. No comparable reporting occurs with stocks and capital gains income. The START Act would eliminate this inequity by requiring brokerage firms and mutual funds to provide cost basis information to the IRS, closing the door on taxpayers who are not paying their fair share in taxes.

The federal government failed to collect close to $350 billion in taxes that are legally owed in 2001. The National Taxpayer Advocate, Nina Olson, has estimated that this results in honest taxpayers having to pay, on average, an additional $2,700 in taxes to subsidize subsidize dishonest taxpayers who aren't paying their fair share.

In 2005, the federal government failed to collect $17 billion in capital gains taxes. The entire tax gap—nearly $350 billion-- exceeds last year's $248 billion budget deficit. The START Act would help collect the portion of the tax gap related to capital gains income, which could represent as much as $170 billion in lost revenue over the next ten years.

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